Cabinet clears proposal for Bill to deal with bankruptcy
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New Delhi: In line with the bankruptcy code for non-financial firms, the Cabinet on Wednesday approved the proposal to introduce a Financial Resolution and Deposit Insurance Bill, 2017 that will provide for a comprehensive resolution framework for specified financial sector entities to deal with bankruptcy situation in banks, insurance companies and financial sector entities.
The Financial Resolution and Deposit Insurance Bill, 2017, when enacted, will pave the way for setting up of the Resolution Corporation that would protect the stability and resilience of the financial system; protecting consumers of covered obligations up to a reasonable limit; and protecting public funds, to the extent possible.
The government recently enacted the Insolvency and Bankruptcy Code, 2016 for the insolvency resolution of non-financial entities. The proposed Bill complements the Code by providing a resolution framework for the financial sector.
“Once implemented, this Bill together with the Code will provide a comprehensive resolution framework for the economy,” a government statement said.
The Financial Resolution and Deposit Insurance Bill, 2017 seeks to give comfort to the consumers of financial service providers in financial distress.
“It 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,” the statement said.
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 Bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of a large number of retail depositors. Further, this Bill seeks to decrease the time and costs involved in resolving distressed financial entities,” the government said.