Bill to deal with crisis in banks, insurers gets Cabinet go-ahead

The proposed law can benefit a large number of retail depositors because the Bill not only aims to strengthen and streamline the current framework of deposit insurance, but also seeks to decrease the time and costs involved in resolving distressed financial entities.

By: ENS Economic Bureau | New Delhi | Updated: June 15, 2017 8:44 am
Financial resolution bill, Financial Resolution and Deposit Insurance Bill, union cabinet, banking news, finance news, economy news, indian express Prime Minister Narendra Modi with his Cabinet colleagues. Prem Nath Pandey

To protect the stability and resilience of the financial system, protect public funds and obligations of consumers up to a reasonable limit, the Union Cabinet approved a proposal Wednesday to introduce the Financial Resolution and Deposit Insurance Bill, 2017 that will pave the way to set up a Resolution Corporation to deal with bankruptcy in banks, insurance companies and financial entities. The proposed law can benefit a large number of retail depositors because the Bill not only aims to strengthen and streamline the current framework of deposit insurance, but also seeks to decrease the time and costs involved in resolving distressed financial entities.

While the Bill seeks to give comfort to consumers of financial service providers during financial distress, it also aims to instill discipline among financial service providers in the event of a financial crisis by limiting the use of public money to bail out distressed entities. This will help in maintaining financial stability in the economy by ensuring adequate preventive measures, and at the same time provide necessary instruments to deal with an event of crisis.

The decision to approve the Financial Resolution and Deposit Insurance Bill, 2017, comes a year after the government enacted the Insolvency and Bankruptcy Code, 2016, for the resolution of insolvency in non-financial entities. In a statement issued Wednesday, the government 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.”

The Bill will also 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 official statement said.

Financial services industry experts say that it will benefit small depositors. “It is good for a certain segment which is likely to lose their savings or deposits. While we are still awaiting for the amount of deposits that will be insured, some estimates suggest that it could be around Rs 1 lakh or slightly higher than that,” said Ashvin Parekh of Ashvin Parekh Advisory Services.

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  1. H
    H K Verma
    Jun 15, 2017 at 10:05 am
    Be careful.This may be lead to limit your deposit to rs 1 lack.The risk of banks heading for trouble is high, considering high NPA. The sole source of income for senior and retired people is deposits in banks and now that too are at potential risk.
    Reply
    1. L
      l s
      Jun 15, 2017 at 6:29 am
      Does this bill have clauses for severe punishment to top bank officials for sanctioning loans above Rs 20.00.000/- without proper audit ????? Does this bill have hidden clauses for loan takers to go scot free after sometime ???????? Does this bill have a clause to complete investigation within 2 months and also courts to dispose the case within 3 months ???????? If not, there will be no use of this bill. There should be clause for either the bank officials nor the loan borrowers to escape with the looted money.
      Reply
      1. T
        TIHAEwale
        Jun 15, 2017 at 8:25 am
        hope u r not labelled as anti national by the dumb bhakts of the present regime
        Reply