The Government on Tuesday said the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 seeks to protect and enhance depositors’ ‘existing rights and bring in a comprehensive and efficient resolution regime for financial firms’. According to the Ministry of Finance, there is presently no comprehensive and integrated legal framework for resolution, including ‘liquidation, of financial firms in India’.
The ministry said that current resolution instruments available under respective legislations are ‘limited, and so is guidance on the process leading up to the resolution’. “The current resolution regime is especially inappropriate for private sector financial firms in the light of significant expansion of private financial firms and many of these acquiring systemically important status in India,” the ministry said in a statement.
“The Insolvency and Bankruptcy Code, 2016 has introduced in the country a comprehensive resolution regime for mainly non-financial firms, but such a regime is not available in the country for financial firms.” The ministry said the FRDI Bill proposes to establish a ‘Resolution Corporation’ and a comprehensive regime to enable timely and orderly resolution of a failing financial firm.
“It provides for detecting incipient insolvencies in financial firms by introducing a five-stage health classification of financial firms and stepping in to appropriately nurse a financial firm at the stage when its health becomes weak and it is classified in the category of material risk to viability,” the statement said.