{"id":14095,"date":"2018-01-05T17:16:13","date_gmt":"2018-01-05T11:46:13","guid":{"rendered":"http:\/\/blog.forumias.com\/?p=14095"},"modified":"2018-01-05T17:16:13","modified_gmt":"2018-01-05T11:46:13","slug":"financial-resolution-and-deposit-insurance-bill-2017-updated","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/financial-resolution-and-deposit-insurance-bill-2017-updated\/","title":{"rendered":"Financial Resolution and Deposit Insurance Bill, 2017 (Updated)"},"content":{"rendered":"<p><strong><u>Financial Resolution and Deposit Insurance Bill, 2017: <\/u><\/strong><\/p>\n<ul>\n<li>The FRDI Bill is\u00a0<strong>part of a larger, more comprehensive approach<\/strong>\u00a0by the Centre towards systematic resolution of all financial firms.<\/li>\n<li>The Bill comes together with the\u00a0<strong>Insolvency and Bankruptcy Code<\/strong>.<\/li>\n<li>It aims at\u00a0<strong>finding and finalising a resolution plan<\/strong>\u00a0to get a troubled company back on track, or, in the event of failure, ensure a quick winding up.<\/li>\n<\/ul>\n<p><strong><u>Need of the Bill: <\/u><\/strong><\/p>\n<ul>\n<li>The need for a specific regulation rose\u00a0<strong>following the 2008 financial crisis<\/strong>.<\/li>\n<li>The crisis witnessed\u00a0<strong>a large number of high-profile bankruptcies<\/strong>.<\/li>\n<li>With the Centre also actively encouraging people to engage more with the banking sector \u2014 both through schemes like Jan Dhan Yojana and moves like demonetisation, it becomes important to\u00a0<strong>protect savers and those joining the formal economy in case a bank or insurance firm starts failing.<\/strong><\/li>\n<\/ul>\n<p><strong><u>Main provisions of the Bill: <\/u><\/strong><\/p>\n<ul>\n<li>The Bill provides for the setting up of a\u00a0<strong>Resolution Corporation<\/strong>.<\/li>\n<li>It seeks to\u00a0<strong>replace the existing Deposit Insurance and Credit Guarantee Corporation.<\/strong><\/li>\n<li>The corporation will be tasked with\u00a0<strong>monitoring financial firms, anticipating their risk of failure, taking corrective action and resolving them in case of failure.<\/strong><\/li>\n<li>The corporation is also tasked with\u00a0<strong>providing deposit insurance up to a certain limit yet to be specified, in the event of a bank failure.<\/strong><\/li>\n<li>It will be tasked with\u00a0<strong>classifying financial firms on their risk of failure<\/strong>\u00a0\u2014 low, moderate, material, imminent, or critical.<\/li>\n<\/ul>\n<p><strong><u>Resolution Corporation:<\/u><\/strong><\/p>\n<ul>\n<li>The Bill establishes a Resolution Corporation to monitor <strong>financial firms, anticipate risk of failure, take corrective action, and resolve them in case of such failure<\/strong>.<\/li>\n<li><strong>The Deposit Insurance and Credit Guarantee Corporation Act insures an amount of deposit (currently 1 lakh); it can be increased<\/strong> by the Corporation to whatever it chooses.<\/li>\n<li>It may <strong>classify financial firms under five categories<\/strong>, based on their <strong>risk of failure<\/strong>.<\/li>\n<li>These categories in the order of increasing risk are: <strong>(i) low, (ii) moderate, (iii) material, (iv) imminent, and (v) critical.<\/strong><\/li>\n<li>The Resolution Corporation will <strong>take over the management of a financial firm<\/strong> once it is classified as \u2018critical\u2019.<\/li>\n<li>It will <strong>resolve the firm within one year<\/strong> (may be extended by another year).<\/li>\n<li>If resolution is not completed within a maximum period of two years, <strong>the firm will be liquidated<\/strong>.<\/li>\n<\/ul>\n<p><strong><u>Financial resolution by Resolution Corporation: <\/u><\/strong><\/p>\n<ul>\n<li>Resolution may be undertaken using methods including:<\/li>\n<\/ul>\n<p><strong>Merger or acquisition:<\/strong><\/p>\n<ul>\n<li>In a\u00a0merger, the boards of directors for two companies approve the combination and seek\u00a0shareholders approval. After the merger, the acquired company ceases to exist and becomes part of the acquiring company.<\/li>\n<li>In a simple\u00a0acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or legal structure.<\/li>\n<\/ul>\n<p><strong>Transferring the assets, liabilities and management to a temporary firm:<\/strong><\/p>\n<ul>\n<li>The assets, liabilities and management of the \u2018critical\u2019 financial firm will be handed over to another firm.<\/li>\n<\/ul>\n<p><strong>Liquidation:<\/strong><\/p>\n<ul>\n<li>Liquidationis the process by which a\u00a0company\u00a0(or part of a company) is brought to an end, and the assets and property of the company are redistributed.<\/li>\n<\/ul>\n<p><strong>Bail in:<\/strong><\/p>\n<ul>\n<li>According to the bail in tool bank\u2019s liabilities can be cancelled or modified to shore up its finances.<\/li>\n<\/ul>\n<p><strong><u>Current status of the Bill: <\/u><\/strong><\/p>\n<p><strong>December \u2013 2017:<\/strong><\/p>\n<ul>\n<li>The Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill), is presently under the consideration of the <strong>Joint Committee of the Parliament<\/strong>.<\/li>\n<li>The Joint Committee is <strong>consulting all the stakeholders on the provisions<\/strong> of the FRDI Bill.<\/li>\n<li>Certain confusions have been expressed in the media regarding \u201cbail-in\u201d provisions of the FRDI Bill.<\/li>\n<\/ul>\n<p><strong>January \u2013 2018:<\/strong><\/p>\n<ul>\n<li>The government issued a clarification on the Financial Resolution and Deposit Insurance Bill\u2019s \u201cbail-in\u201d provision.<\/li>\n<li>According to the government the &#8220;bail-in&#8221; clause <strong>will not be used for public sector banks (PSBs).<\/strong><\/li>\n<li>The \u201cbail-in\u201d clause <strong>can only be used in private banks,<\/strong> and <strong>that too only if the customers allow it.<\/strong><\/li>\n<li>Furthermore, the use of the \u201cbail-in\u201d clause by the Resolution Corporation will be <strong>subject to government scrutiny and parliamentary oversight.<\/strong><\/li>\n<li>In the event of a \u201cbail-in\u201d, the Resolution Corporation will have to ensure that <strong>depositors get back at least as much money as they would have if the bank had been liquidated<\/strong>.<\/li>\n<li>The claims of <strong>uninsured depositors (that is, beyond\u00a01 lakh) would be given precedence<\/strong> over the claims of unsecured creditors and government dues.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Financial Resolution and Deposit Insurance Bill, 2017: The FRDI Bill is\u00a0part of a larger, more comprehensive approach\u00a0by the Centre towards systematic resolution of all financial firms. The Bill comes together with the\u00a0Insolvency and Bankruptcy Code. It aims at\u00a0finding and finalising a resolution plan\u00a0to get a troubled company back on track, or, in the event of&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/financial-resolution-and-deposit-insurance-bill-2017-updated\/\">Continue reading <span class=\"screen-reader-text\">Financial Resolution and Deposit Insurance Bill, 2017 (Updated)<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":14097,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[27],"tags":[],"class_list":["post-14095","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured-editorials","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2018\/01\/Financial-Resolution-and-Deposit-Insurance-Bill-2017.jpg?fit=1000%2C515&ssl=1","views":{"total":0,"cached_at":1700797187,"cached_date":1704676269},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/14095","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=14095"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/14095\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/14097"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=14095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=14095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=14095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}