Report of Committee to Draft Code on Resolution of Financial Firms (2016) and Financial Resolution and Deposit Insurance Bill, 2017
Designing a law for resolution of distressed banks and
After the Global Financial Crisis of 2008, a consensus emerged that distressed financial firms (especially those which are systemically important for the economy) are best resolved under a special resolution regime that ensures continuity of services and provides a swift mechanism for timely resolution.
In 2016, the government set up a committee to design a law for resolution of distressed banks and financial institutions. The committee proposed the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017.
The objective of the Bill was to provide a comprehensive and specialised resolution framework for dealing with bankruptcy situations in banks, insurance companies, payment systems, and other financial service providers.
At the time when the committee was set up, the resolution framework for such entities was quite underdeveloped and scattered across multiple laws. The Bill sought to provide a uniform framework and a streamlined process for early detection of stress and timely resolution. It sought to enable resolutions that would have mitigated losses for the affected stakeholders and prevented financial contagions in the economy. It proposed to establish a new authority, namely, the ‘Resolution Corporation’ for monitoring the financial stability of large financial firms and resolving the distressed ones swiftly for ensuring the stability of the financial system, especially during an economic crisis.
The Committee published its report in September, 2016. The FRDI Bill was tabled in the Parliament in August, 2017, but was withdrawn in August, 2018.