{"id":160495,"date":"2022-01-11T09:47:31","date_gmt":"2022-01-11T04:17:31","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=160495"},"modified":"2022-01-12T16:28:16","modified_gmt":"2022-01-12T10:58:16","slug":"on-financial-resolution-and-deposit-insurance-frdi-bill-orderly-failure-options-will-help-indian-financial-firms-flourish","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/on-financial-resolution-and-deposit-insurance-frdi-bill-orderly-failure-options-will-help-indian-financial-firms-flourish\/","title":{"rendered":"On Financial Resolution and Deposit Insurance (FRDI) Bill : Orderly failure options will help Indian financial firms flourish\u00a0"},"content":{"rendered":"\n

News: Government is aiming to modify and re-introduce the Financial Resolution and Deposit Insurance (FRDI) Bill.<\/span>\u00a0<\/span><\/p>\n

Government is planning to modify and re-introduce the Financial Resolution and Deposit Insurance (FRDI) Bill.\u00a0The bill puts in place a resolution mechanism to deal with the insolvency of firms in the financial sector.<\/span>\u00a0<\/span><\/p>\n

The bill was introduced\u00a0earlier\u00a0in 2016\u00a0but was withdrawn in 2018, due to controversy around\u00a0\u00a0<\/span>\u2018bail-in\u2019 provision<\/span><\/a>.\u00a0The provision distressed financial service providers with the option to restructure its debt internally. He was allowed\u00a0to\u00a0either write\u00a0off its uninsured debt or convert deposits to other instruments such as equity.<\/span>\u00a0<\/span><\/p>\n

However, there are other concerns also associated with the bill.\u00a0<\/span>\u00a0<\/span><\/p>\n

Scope of\u00a0the\u00a0bill:<\/span><\/b>\u00a0Pension funds and Housing Finance Companies (HFCs) are not clearly mentioned in the bill. So,\u00a0whether\u00a0FRDI provisions\u00a0would be applicable to\u00a0these sectors or not is ambiguous.\u00a0<\/span>\u00a0<\/span><\/p>\n

Time bound payment to depositors:<\/span><\/b>\u00a0Financial Stability Board (FSB)\u00a0advocates time-bound payments to insured depositors.\u00a0This aspect should be addressed in the revised bill.<\/span>\u00a0<\/span><\/p>\n

Deposit Insurance system:<\/span><\/b>\u00a0International Association for Deposit Insurance (IADI) laid down\u00a0<\/span>\u2018Core principles for effective deposit insurance\u00a0systems\u2019<\/span><\/b>. It includes pay-outs be made to depositors within seven working days.\u00a0FRDI bill had no mention of any such timeline, and only mentions about prompt pay-outs to depositors. The word prompt should be defined properly and not left to define per case basis on regulators.\u00a0<\/span>\u00a0<\/span><\/p>\n

Coverage limit of insured deposits:\u00a0<\/span><\/b>Deposit insurance limit has been raised to Rs. 5\u00a0lakhs\u00a0by an amendment to Deposit Insurance and Credit Guarantee Corporation Act.\u00a0However, it is still abysmally low compared to the coverage limit of insured deposits of about \u20b91.84 crore in the US and \u20b91.5 crore in Australia.<\/span>\u00a0<\/span><\/p>\n

Immunity to officers:<\/span><\/b>\u00a0FRDI bill should also consider providing immunity to the directors and officers of the firm under resolution. In the absence of such immunity, challenges could arise in implementing resolution orders.<\/span>\u00a0<\/span><\/p>\n

Conflict of Interest:<\/span><\/b>\u00a0Operational freedom of the resolution body should be ensured.\u00a0Dual role of resolution body in the resolution process as well as deposit insurance of insured service providers would result in conflicts of interest.\u00a0<\/span>\u00a0<\/span><\/p>\n

Resolution:<\/span><\/b>\u00a0Government should\u00a0prioritise\u00a0creating the legal framework to encourage quick resolution of stress and insolvency.<\/span>\u00a0<\/span><\/p>\n

Bridge institutions:<\/span><\/b>\u00a0The bill should provide for reverse-transfer powers to \u2018bridge institutions\u2019, as available across the world. This would help in resolving even the\u00a0loss-making part of the business.\u00a0<\/span><\/p>\n

Source:<\/b>\u00a0This post is based on the article \u201cOrderly failure options will help Indian financial firms flourish\u201d published in\u00a0Live Mint<\/b>\u00a0on\u00a010<\/b>th<\/b>\u00a0January 2022<\/b>. \u00a0\u00a0\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

News: Government is aiming to modify and re-introduce the Financial Resolution and Deposit Insurance (FRDI) Bill.\u00a0 Government is planning to modify and re-introduce the Financial Resolution and Deposit Insurance (FRDI) Bill.\u00a0The bill puts in place a resolution mechanism to deal with the insolvency of firms in the financial sector.\u00a0 The bill was introduced\u00a0earlier\u00a0in 2016\u00a0but was… Continue reading On Financial Resolution and Deposit Insurance (FRDI) Bill : Orderly failure options will help Indian financial firms flourish\u00a0<\/span><\/a><\/p>\n","protected":false},"author":10323,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10501],"class_list":["post-160495","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-live-mint","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704875223},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/160495","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\/10323"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=160495"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/160495\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=160495"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=160495"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=160495"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}