New Delhi: After passing the bankruptcy code in Parliament for time-bound settlement of insolvency cases in non-financial firms, the finance ministry has released a draft bill to set up a resolution corporation to address similar issues among financial firms.

Finance minister Arun Jaitley, in his 2016-17 budget speech, said a comprehensive code on resolution of insolvency cases in financial firms will be introduced as a bill in Parliament in this fiscal.

“A systemic vacuum exists with regard to bankruptcy situations in financial firms. This code will provide a specialized resolution mechanism to deal with bankruptcy situations in banks, insurance firms and financial sector entities. This code, together with the Insolvency and Bankruptcy Code 2015, when enacted, will provide a comprehensive resolution mechanism for our economy," he had said.

Following the announcement, on 15 March, the ministry set up a panel under additional secretary Ajay Tyagi to draft and submit the bill.

The panel has submitted its report and a draft bill known as The Financial Resolution and Deposit Insurance Bill, 2016 has been drawn up. The finance ministry has sought comments on the bill from all stakeholders by 14 October.

The draft proposes to consolidate the existing laws relating to certain categories of financial institutions known as “covered service providers", including banks, insurance companies, financial market infrastructure, payment systems, and other financial service providers, but excludes individuals and partnership firms.

It envisages the setting up of a resolution corporation with its head office in Mumbai. The general direction and management of the corporation will be conferred on the board of the resolution corporation. The board will comprise representatives from regulators of the banking, securities market, insurance and pension sectors as well as two independent members.

The committee observed that the enactment of the bill will empower the resolution corporation to contribute to the stability and resilience of the financial system by carrying out speedy and efficient resolution of distress in financial firms, providing deposit insurance to consumers of certain categories of financial services, monitoring the Systemically Important Financial Institutions (SIFI) and protecting the consumers of financial institutions and public funds to the extent possible.