The Union Cabinet on Wednesday approved a proposal to introduce a Bill that would provide a comprehensive resolution framework for bankruptcy cases involving banks, insurance companies, and financial sector entities.
The Financial Resolution and Deposit Insurance Bill 2017, when enacted, will have a provision for the setting up of a Resolution Corporation, and would also see the repealing or amendment of several resolution-related provisions in Acts pertaining to the particular sectors. The passage of the Act will also lead to the repealing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 in order to transfer the deposit insurance powers and responsibilities to the Resolution Corporation.
“The Government has recently enacted the Insolvency and Bankruptcy Code, 2016 (‘Code’) for the insolvency resolution of non-financial entities,” the official statement said. “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.”
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“It (the proposed Bill) also aims to inculcate discipline among financial service providers in the event of financial crises by limiting the use of public money to bail out distressed entities,” the statement added. “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.”