The proposed bill will pave the way for setting up of the Resolution Corp, which will lead to repeal of resolution-related provisions in sectoral Acts, as listed in schedules of the legislation
New Delhi : The Union Cabinet on Wednesday approved a proposal to introduce a new bankruptcy bill for the financial sector in the Monsoon Session of Parliament, a government statement said.
The Financial Resolution and Deposit Insurance Bill provides for a comprehensive resolution framework for specified financial sector entities to deal with bankruptcy situation in banks, insurance companies and other financial sector entities.
The government recently enacted the Insolvency and Bankruptcy Code, 2016 for the insolvency resolution of non-financial entities and the bill for the financial sector complements the code.
The bill for the financial sector will pave the way for setting up of the Resolution Corporation and would lead to repeal or amendment of resolution-related provisions in sectoral Acts, as listed in schedules of the legislation, reports Cogencis.
“The Resolution Corporation would protect the stability and resilience of the financial system; protecting the consumers of covered obligations up to a reasonable limit; and protecting public funds, to the extent possible,” the government said.
Once enacted, the new law will result in the repealing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, which currently protects depositors in case a financial company fails to pay its debt, and will transfer the powers and responsibilities to the Resolution Corporation.
The law seeks to protect consumers from losing money when banks, insurance companies, and other financial sector entities go bankrupt. The bill also aims to inculcate discipline among financial service providers in the event of financial crises by limiting the use of public money to bail out distressed entities.
“It would help in maintaining financial stability in the economy by ensuring adequate preventive measures, while at the same time providing the necessary instruments for dealing with an event of crisis,” the government said, asserting that the bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of a large number of retail depositors.
