‘Need legally-backed resolution corporation to deal with stressed financial firms’

MUMBAI: Reserve Bank Governor Shaktikanta Das on Saturday advocated the creation of a ‘resolution corporation’ with legislative backing for resolution and revival of stressed financial firms. The government in August 2017 had introduced the Financial Resolution and Deposit Insurance (FRDI) Bill in Parliament which, among other things, proposed setting up of a resolution corporation. However, after a year, the government decided to withdraw the bill as there were concerns raised about the protection of depositors’ money if it was passed with the controversial “bail-in” clause, under which a bank’s liabilities could be cancelled/modified to shore up its finances.

“Going forward, we need the legislative backing to have some kind of a resolution corporation, which has to deal with resolution and revival of stressed financial firms,” Governor Das said at the 7th SBI Banking and Economics Conclave. He said the regulator can issue early warning signals and flag the emerging risks.

“The regulator will continue to take necessary measures, continue to engage with the management of the bank or NBFCS to identify the vulnerabilities, but there has to be a legallybacked arrangement,” he noted. The governor said setting up a resolution corporation was earlier part of the FRDI Bill which the government withdrew because there were certain issues which needed closer examination.

He further said the notification issued under Section 227 of the Insolvency and Bankruptcy Code (IBC) has given additional powers to the RBI to deal with non-banking financial companies (NBFCS) and housing finance companies (HFCS). By using those powers, the RBI had appointed an administrator for Dewan Housing Finance (DHFL) and that has been referred to the NCLT, he said.