Govt clears bill to deal with banking crisis

The Union Cabinet on Wednesday approved a proposal to introduce a bill in Parliament for setting up a resolution corporation to deal with bankruptcy in banks, insurance companies and other financial entities.

The Financial Resolution and Deposit Insurance, Bill 2017 when enacted, will pave the way for setting up of the Resolution Corporation. It would lead to repeal or amendment of resolution-related provisions in sectoral Acts as listed in schedules of the bill. It will also result in the repealing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 to transfer the deposit insurance powers and responsibilities to the Resolution Corporation.

“The Resolution Corporation would protect the stability and resilience of the financial system; protecting the consumers of covered obligations up to a reasonable limit; and protecting public funds, to the extent possible,” an official statement said after the meeting chaired by Prime Minister Narendra Modi.

The government has recently enacted the Insolvency and Bankruptcy Code, 2016 for the insolvency resolution of non- financial entities. The proposed bill complements the code by providing a resolution framework for the financial sector. Once implemented, this bill together with the code will provide a comprehensive resolution framework for the economy.

The bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of a large number of retail depositors. It seeks to decrease the time and costs involved in resolving distressed financial entities.