Examining RBI’s powers for Resolving Failed or Failing Banks and Financial Institutions and Suggesting Reforms for Empowering RBI for this purpose
Recommendations for Reforming the Resolution Framework
The global financial crisis and the failure of several banks and financial institutions in its aftermath made a strong case for an effective resolution regime for banks and financial institutions in India.
While the Financial Sector Legislative Reforms Commission (FSLRC) had recommended a separate resolution authority in 2013, it would have taken several years to implement that reform. This report emphasized the importance of having interim arrangements that could empower the Reserve Bank of India (RBI) for facilitating efficient and speedy resolutions.
Across three main parts, it highlighted the need for a stronger and more efficient resolution regime in India. In the first part, it evaluated India’s fragmented resolution regime and outlined its limitations. In the second part, it discussed international best practices on resolution frameworks that could be implemented in India.
In the third Part, it discussed its main recommendations through the lens of three primary questions –(i) How could the RBI be empowered to have greater resolution powers in relation to the financial firms governed by it? (ii) How could the existing deposit insurance mechanism be strengthened? and (iii) What could be some of the additional resolution tools that the RBI could resort to under its then existing powers?
Among other measures, the report recommended the establishment of separate resolution authority within RBI.