House panel to meet on bankruptcy resolution

Wednesday will see the first meeting of Parliament's joint committee to study the government's Bill to put in place a resolution framework to deal with bankruptcy situations at banks, insurance companies and entities such as non-banking financial companies.

The Financial Resolution and Deposit Insurance Bill was referred to the joint committee on August 10, during the monsoon session, and the panel was constituted on August 19. It has 20 members from the Lok Sabha and 10 from the Rajya Sabha. Bhupender Yadav, the latter's member from the ruling Bharatiya Janata Party, heads it.

The report is supposed to come in the winter session of Parliament. This, with the Insolvency and Bankruptcy Code enacted last year, is aimed to provide a comprehensive resolution mechanism. It is to put in place the process for designation of systemically important financial institutions, establishment of a Resolution Corporation for protection of consumers of specified service providers and of public funds.

This Resolution Corporation would be empowered with some new methods of resolution, such as bail-in and bridge service providers. The entity would will have a chairperson and its members will include representatives from the finance ministry, Reserve Bank of India and Securities and Exchange Board of India, among others.

According to a Cabinet note, it would also aim to inculcate discipline among financial service providers in the event of a crisis, by limiting the use of public money to bail out distressed entities.

“It would help in maintaining financial stability in the economy by ensuring adequate preventive measures, while at the same time providing the necessary instruments for dealing with an event of crisis,” went the note.

The Resolution Corporation would be empowered with some new methods of resolution, such as bail-in and bridge service providers