The Cabinet has ratified an insolvency regime for the delicate financial sector. As per the Financial Resolution and Deposit Insurance Bill 2017, financial sector entities including banks, insurance companies and other entities related to the sector will come under the regime.
The proposed Resolution Corporation under the regime interestingly gets the authority over Deposit Insurance. Besides it will get power to implement decisions related to financial stability which now comes under the RBI.
After the global financial crisis, major regulators in the West have enacted resolution regime that aims to rehabilitate financial sector entities that have a potential for failure. The resolution regime is one of the biggest post-crisis restructuring exercise after the crisis. In India, a dedicated Bankruptcy regime is already launched by the government for corporate and industries.
A Resolution Corporation will look after the resolution and bankruptcy procedures of financial institutions. It will have financial stability augmenting function, implying that the current RBI functionality will be shared with the Resolution Corporation.
The uniqueness of the present regime is to integrate the existing deposit insurance business with the new Resolution Corporation that is to be created. At present the RBI owned Deposit Insurance and Credit Guarantee Corporation is doing that work.
The Resolution Corporation has the responsibility to protect financial stability and to enhance resilience of the entire system.