Financial Resolution and Deposit Insurance Bill, 2017
The Financial Resolution and Deposit Insurance Bill 2017 connected to the Insolvency and Bankruptcy Code, 2016. An Act covers law relating to restructuring and insolvency of corporate, partnership firms and individual. It sets priority list pf repayment at the time of liquidation and also establish an Insolvency and Bankruptcy Board of India. The FRDI Bill covers Financial institutions and governs provisions relating to its restructuring and insolvency. It covers bankruptcy of businesses such as banks and also insurance. Financial resolution includes banks which are facing financial risk.
Financial Resolution and Deposit Insurance Bill 2017 is expected to step soon in the economy as the process has been started. The joint parliamentary committee, headed by Bhupender Yadav, is to submit its report during the winter session. The committee and also members of Parliament will examine the bill and put before the Parliament.
According to the Financial Stability Board (FSB) Peer Review Report August 2016, Indians normally invest their savings in the Banking system. 63% of the financial investment is in the banking sector. Public sector banks grabs 63% of financial investment and private banks accounts for 18%.
After global financial crisis of 2008 , many countries and also regulators reviewed their financial structure and came up new regulation in their financial structure. India never came up with the framework dealing in bankruptcy or insolvency of Financial institution. Now with this bill, Government has came up with the regulations dealing with the insolvency or bankruptcy of financial institutions (Financial Resolution and Deposit Insurance Bill, 2017).
Financial Resolution and Deposit Insurance Bill 2017 has a provision of bail-in by which the financial institution can recover its position in the market and ensure its survival. It provides arrangement for financial institution to face crisis without burdening taxpayers. Bail-in means creditors and also depositors rescue the financial institution by absorbing the losses in case of financial crisis.
“The government has decided to take a massive step to capitalize Public Sector Banks in a front-loaded manner, to support credit growth and job creation”
The Hindu, Article “₹2.11 lakh crore for public sector banks banks to boost lending” Retrieved on 13th December 2017, Original Article, Said by Mr. Kumar at a press conference.
“the government will fully protect bank deposits of the public in an attempt to allay fears over a clause in the new financial resolution and also deposit insurance (FRDI) Bill”
Business Today, Article named “FRDI Bill 2017: Govt will fully protect public deposits in banks” Retrieved on 13th December 2017, Original Article by Business Today, Said by Arun Jaitley.
The bill says that the corporation may, if it is satisfied, can allow a particular institution to go for bail-in and take up the depositors and creditors to absorb the losses incurred, or reasonably expected to be incurred. This will provide the bank with capital so as to carry on business and maintain market value stable.
The Bill specifically excludes following categories:
- Deposit covered by deposit insurance.
- Liabilities by virtue of holding client assets.
- These client assets include any liability of original maturity up to seven days.
- Obligations to a central counter party.
- Secured creditor
- Pension liabilities,employee provident fund etc.
- It takes less time to resolve the problems of financial crisis of financial entities.
- It helps in maintaining the financial position of entities in the economy stable in case of financial crisis.
- If the bill is implemented with the Insolvency and Bankruptcy Code 2016, it will provide the framework to deal with the economy.
- The bill also includes that the financial institution to behave in discipline in the event of financial crisis.
- It promotes ease in doing business in the country.
- increase access to credit and improper financial decisions, may also lead to reduction in cost for obtaining credit.
- Increased access to finance improves growth of enterprise, which will preserve employment, growth and also the creation of new opportunities.