The first draft of the Financial Resolution and Deposit Insurance Bill (2016) ('Bill') was released by the Ministry of Finance of the Indian Government on 28th September, 2016. Along with the draft Bill, the Ministry also released a brief report of the drafting committee and a summary on the key provisions in the Bill. The government seeks public comments on the draft Bill by 14 October 2016.
The Bill, together with the recently released Insolvency and Bankruptcy Code (2016), is designed to provide a comprehensive resolution mechanism for the country. Specifically, the Bill aims to address the structural lack of a coherent, specialised insolvency regime for financial firms, including banks, insurance companies financial market infrastructures, payment systems, and other financial service providers. Currently, these resolution tools are scattered across a number of legislations.
To help achieve the goal of maintaining financial stability in the country, the Bill creates a new authority called the 'Resolution Corporation', which will have recourse to a number of tools, in line with those provided in the Financial Stability Board’s Key Attributes, including using bail-in, a bridge bank service provider, transfer of assets and liabilities to another institution, liquidation, and the use of a run-off entity for insurance firms. The Resolution Corporation has been designed to maintain the stability and resilience of the financial system and protect consumers by carrying out speedy and efficient resolution of financial firms in distress. It also monitors firms designated by the Central Government as Systemically Important Financial Institutions ('SIFIs'). Finally, the Resolution Corporation is also responsible for providing deposit insurance to consumers of certain categories of financial services.
The Government was assisted by the Vidhi Centre for Legal Policy to provide research on the international best practises in this regard, and also drafting assistance to the Committee.
Disclosure: Thom Wetzer, Associate Editor at the OBLB, acted as Non-Resident Expert to the Vidhi Centre for Legal Policy in relation to this draft Bill.