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The Finance Resolution And Deposit Insurance Bill, 2017
December, 19th 2017

In his 2016-17 budget speech, Union finance minister Arun Jaitley said, “A systemic vacuum exists with regard to bankruptcy situations in financial firms. A comprehensive Code on Resolution of Financial Firms will be introduced as a Bill in the Parliament during 2016-17.”    Following the announcement made on 15 March 2016, a committee was formed under the chairmanship of Ajay Tyagi, additional secretary, Department of Economic Affairs, Ministry of Finance, to draft and submit the Bill. The committee also had representatives of the financial sector regulatory authorities and the Deposit Insurance and Credit Guarantee Corporation.  The committee submitted its report and based on it FRDI Bill was drafted. The finance ministry sought comments on the Bill till 31 October 2016 and after consideration and suggestions received from various authorities and stakeholders, Union Cabinet approved it to introduce it in the Parliament.

Introduction of the Bill

The Central Government introduced ‘The Finance Resolution and Deposit Insurance Bill, 2017’ in the Lok Sabha on 10.08.2017.   The bill has been referred to the Joint Parliamentary Committee to study the bill and to give the report.  It is expected that the Committee would submit the report and based on this the bill may be passed in the Lok Sabha in the winter session of the Parliament.   However the report has not yet been submitted and it is likely that this bill will not be taken into consideration in the current session.


Reason for this bill

The Statement of objects and reasons to this bill as put up by the Hon’ble Finance Minister indicates that at present there is no specific law in our country for resolution of failures of financial service providers.  However some provisions relating to the failures of financial service providers can be found scattered in certain enactments, such as-

  • the Banking Regulation Act, 1949;
  • the Reserve Bank of India Ct, 1934;
  • the Insurance Act, 1938;
  • the Life Insurance Corporation Act, 1956;
  • the General Insurance Business (Nationalisation) India Act, 1972;
  • the Regional Rural Banks Act, 1976;
  • the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970;
  • the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980;
  • the State Bank of India Act, 1955;
  • the State Bank of India (Subsidiary Banks) act, 1959; and
  • the Multi State Co-operative Societies Act, 2002.

Financial Service provider

Section 2(17) of the Insolvency and Bankruptcy Code, 2016 defines the expression ‘financial service provider’ as a person engaged in the business of providing financial services in terms of authorization issued or registration granted by a financial sector regulator.

Failure of financial service providers

The impact of failures of financial providers is much wider.  Such failures can have a systematic effect on the economy and financial stability of a country, unlike traditional insolvency, where the affected parties are limited to the creditors of the insolvency entity.  Since financial service providers handle consumer funds, some of them are critical for stability of the financial systems.  Therefore it is considered as important to resolve failing financial service providers expeditiously through a specialized resolution process.  The traditional length resolution proceedings can lead to losses for consumers or instability in the financial system.  The existing laws are inadequate, ineffective and fail to address the larger issue of preserving financial stability as they do not provide effective resolution tools and powers to the resolution authorities.

Proposal in the bill

The bill proposed for the following-

  • establishment of a Resolution Corporation and to confer upon the Corporation certain powers of resolution relating to transfer of assets to a healthy financial firm, merger or amalgamation, liquidation to be initiated by an order of the NationalCompany Law Tribunal and some new methods of resolution such as bail-in and creation of a bridge service provider;
  • designation of certain financial service providers as Systematically Important Financial Institutions, based on the criteria to be determined by the Central Government, the failure of which may disrupt the entire financial system and in view of their importance for the economy, the proposed legislation confers some additional powers in respect of such institutions;
  • constitution of certain funds for the purposes of the proposed legislation, namely,-
  • the Corporation Insurance Fund for deposit insurance provided by the Corporation to the insured service providers;
  • the Corporation Resolution Fund for meeting the expenses of carrying out resolution of specified service provider; and
  • the Corporation General Fund for all other functions of the Corporation;
  • repeal of the Deposit Insurance and Credit Guarantee Corporation Act, 1961;
  • amendment of certain enactments, in the manner provided in the IV the Schedule to the proposed legislation, with a view to give resolution powers to the Resolution Corporation under those Acts.

Object of the Bill

The objects of the Bill are as follows-

  • to provide for the resolution of certain categories of-
  • financial service providers in distress;
  • the deposit insurance to consumers of certain categories of financial services;
  • designation of systematically important financial institution; and
  • establishment of a Resolution Corporation for protection of consumers of specified service providers and of public funds

for ensuring stability and resilience of the financial system and for matters connected therewith or incidental thereto.

About the bill

  • The Bill has XVIII chapters containing 146 sections and four schedules.
  • The details of the Chapters are as below-
  • Chapter I – Preliminary – Sections 1 and 2;
  • Chapter II – Resolution Corporation – Section 3 to section 24;
  • Chapter III – Systematically important financial institutions – Section 25 to section 28;
  • Chapter IV – Liability of corporation to insured depositors of insured service providers – section 29 to section 32;
  • Chapter V – Registration – section 33 to section 35;
  • Chapter VI – Resolution of specified service provider – section 36 and 37;
  • Chapter VII – Restoration and resolution plan – Section 38 to section 41;
  • Chapter VIII – Material, imminent and critical risk to viability;
  • Chapter IX – Effect on termination rights under specified contracts – Section 47;
  • Chapter X – Methods and time limit of resolution – section 48 to section 57;
  • Chapter XI – Administration – Section 58 to section 62;
  • Chapter XII – Liquidation – Section 63 to section 92;
  • Chapter XIII – Voluntary Liquidation and winding up ; section 93 and section 94;
  • Chapter XIV – Foreign resolution action – Section 95 to section 97;
  • Chapter XV – Offences and penalties – Section 98 to section 113;
  • Chapter XVI – Compensation – Section 114 to section 119;
  • Chapter XVII – Special provisions relating to eligible co-operative banks – Section 120 and section 121;
  • Chapter XVIII – Miscellaneous – Section 122 to section 146;


The schedules to this Bill provides the following-

  • The First Schedule – Appropriate Regulator;
  • The Second Schedule – Specified Service Provider;
  • The Third Schedule – Declaration of Fidelity and Secrecy;
  • The Fourth Schedule – Amendment to Certain enactments.


The Bill proposes amendments in the following Acts-

  • Part I – Amendment to the Indian Stamp Act, 1899;
  • Part II – Amendments to the Reserve Bank of India Act, 1934;
  • Part III – Amendments to the Insurance Act, 1938;
  • Part IV – Amendments to the Banking Regulation Act, 1949;
  • Part V – Amendments to the State Bank of India Act, 1955;
  • Part VI – Amendment to the Life Insurance Corporation Act, 1956;
  • Part VII – Amendments to the Securities Contracts (Regulation) Act, 1956;
  • Part VIII – Amendments to the State Bank of India (Subsidiary Banks) Act,1959;
  • Part IX - Amendment to the Income Tax Act, 1961;
  • Part X – Amendment to the Customs Act, 1962;
  • Part XI – Amendments to the Banking Companies (Acquisition and Transfer of Undertakings) Act,1970;
  • Part XII – Amendment to the General Insurance Business (Nationalization) Act, 1972;
  • Part XIII – Amendments to the Regional Rural Banks Act, 1976;
  • Part XIV – Amendments to the Banking Companies (Acquisition and transfer of Undertakings) Act, 1980;
  • Part XV – Amendments to the Export-Import Bank of India Act, 1981;
  • Part XVI – Amendments to the National Housing Bank Act, 1987;
  • Part XVII – Amendment to the Finance Act, 1994;
  • Part XVIII – Amendments to the Multi-State Cooperative Societies Act, 2002;
  • Part XIX – Amendments to Companies Act, 2013;
  • Part XX – Amendment to the Pension Fund Regulatory and Development Authority Act, 2013;
  • Part XXI – Amendment to the Insolvency and Bankruptcy Code, 2016;
  • Part XXII – Amendment to the General Goods and Services Tax Act, 2017.

Salient features of the bill

The following are the salient features of the bill-

  • The bill provides for the creation of Resolution Corporation which will have multiple roles of supervision and to act as liquidator or receiver in the liquidation of entities
  • The resolution plan covered to-
  • any banking institutions other than eligible co-operative bank including an insured service provider;
  • any insurance company;
  • any financial market infrastructure;
  • any payment systems;
  • any non banking financial company, not notified under section 227 of the IBC, 2016;
  • any systematically important financial institution;
  • any other financial service provider (excluding individuals and partnership firms), not notified under section 227 of IBC, 2016;
  • a holding company of any specified service provider enumerated above registered in India which is not notified under section 227 of the IBC, 2016 subject to the determination by the Corporation under the proviso to section 33(1);
  • non-registered operational entities within a financial group or conglomerate of a specified service provider enumerated above to the determination by the Corporation under section 33(1);
  • branch office of body corporate incorporated outside India, carrying on the business of providing financial service in India;
  • any other entity or fund which may be notified by the Central Government;
  • Time limit for completion of resolution process if fixed i.e., two years;
  • FRDI Bill also provides for enforcement of resolution in a foreign country in case there is an agreement to this effect between the Indian government and such foreign country and its regulators.
  • The Bill provides for closure of DICGC Act, 1961 in the manner as provided in the Bill.  Once enacted, the DICGC shall stand dissolved and all its functions will be carried out by the Resolution Corporation.

Stand of bank unions

Bank unions approached Finance Minister for FRDI Bill withdrawal since FRDI bill proposes to empower authorities with sweeping powers to wind up public sector banks and insurance companies.    According to them, already, there are many rules and legislation in place under the existing Acts that deal with winding up of financial institutions.  The United Forum of Bank Unions said that the objective of this Bill is obviously to heavily empower the new authority with sweeping powers to dismantle and erase public sector financial institutions like banks and insurance companies and hence, it is apparently draconian. The Union demands for  withdrawal of this Bill.

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