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15-Jun2017

Cabinet clears proposal of new Bill to deal with bankruptcy in financial sector

In a bid to protect clients of financial service providers in financial distress, the Union Cabinet cleared a proposal to introduce a Financial Resolution and Deposit Insurance Bill, 2017 in Parliament. The Bill, when enacted, will pave the way for setting up of the Resolution Corporation and will provide for a comprehensive resolution framework to handle any bankruptcy situation in banks, insurers and financial sector entities. The Bill aims to inculcate discipline in financial service providers in the event of a financial crisis by limiting the use of public money to bail out distressed entities.

According to the government's statement, the Bill will 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 ensure the stability and resilience of the financial system, protecting the consumers of covered obligations up to a reasonable limit and public funds to the extent possible.

The government had recently enacted the Insolvency and Bankruptcy Code, 2016 ('Code') 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, the Bill together with the Code will provide a comprehensive resolution framework for the economy.

The Bill seeks to give comfort to consumers of financial service providers during any financial distress. It would also help in maintaining financial stability in the economy by ensuring adequate preventive measures while at the same time providing necessary instruments for dealing with a post-crisis situation. The Bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of a number of retail depositors.


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