Study Material | Test Series
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
mains Test Series 2018
Financial Resolution and Deposit Insurance Bill, 2017
Sep 11, 2017

[GS Paper III: (Indian economy and issues relating to planning, mobilisation of resources, growth, development and employment)]

Why in News?

The Financial Resolution and Deposit Insurance Bill, 2017 has been referred by Parliament to a Joint Parliamentary Committee of both the Houses for examination and presenting a report. 

Background

  • The Bill seeks to decrease the time and costs involved in resolving distressed financial entities and create a framework for resolving bankruptcy in financial firms (such as banks and insurance companies). 
  • It also aims to inculcate discipline among financial service providers in the event of financial crises by limiting the use of public money to bail out distressed entities.
  • The Bill repeals the Deposit Insurance and Credit Guarantee Corporation Act, 1962 and amends 12 other laws.
  • The proposed legislation together with the Insolvency and Bankruptcy Code, 2016 is expected to provide a comprehensive resolution mechanism for the economy.
  • The Bill will apply to financial firms, and any other financial service provider designated as a ‘systemically important financial institution’ by the central government.  

Salient Features

  • Resolution Corporation: The central government will establish a Resolution Corporation that will have a Chairperson and its members will include representatives from the Finance Ministry, RBI, and SEBI, among others. 
  • Functions of the Resolution Corporation:

• Providing deposit insurance to banks (to repay deposits to consumers in case of failure)
• Classifying service providers (such as banks and insurance companies) based on their risk
• Undertaking resolution of service providers in case of failure 
• It may also investigate the activities of service providers, or undertake search and seizure operations if provisions of the Bill are being contravened  

  • Risk based classification: The Corporation in consultation with the respective regulators (e.g. RBI for banks, and IRDA for insurance companies) will specify criteria for classifying service providers based on their risk of failure. 
  • A service provider categorised under the ‘imminent’ or ‘critical’ category will submit a restoration plan to the regulator, and a resolution plan to the Corporation. 
  • The Corporation will undertake resolution of a service provider classified as ‘critical’ by transferring its assets and liabilities to another person; by merger or acquisition, and by liquidation.  
  • The Corporation will take over the management of the service provider from the date when it is classified as ‘critical’.  
  • Offences: The Bill specifies penalties for offences such as concealment of property, and destruction or falsification of evidence. Penalties will vary based on the nature of the offence, with the maximum penalty being imprisonment for five years, along with a fine.

Insolvency and Bankruptcy Code, 2016

  • The Insolvency and Bankruptcy Code, 2015 was introduced was passed by Lok Sabha on in May 2016. The Code creates a framework for resolving insolvency in India.
  • Insolvency is a situation where an individual or a company is unable to repay their outstanding debt.
  • The Code will apply to companies, partnerships, limited liability partnerships, individuals and any other body specified by the central government.
  • The Code specifies insolvency resolution processes for companies and individuals, which will have to be completed within 180 days. This limit may be extended to 270 days in certain circumstances. The resolution process will involve negotiations between the debtor and creditors to draft a resolution plan.

Salient features

  • Insolvency professionals and agencies: The resolution process will be conducted by a licensed insolvency professional (IP). The IP will control the assets of the debtor during the process. Insolvency professional agencies will be created to regulate these IPs. The agencies will conduct examinations to enroll IPs and enforce a code of conduct for their functioning.
  • Information Utilities: The Code establishes multiple information utilities to collect, collate and disseminate financial information related to a debtor. This will include a record of debt and liabilities of the debtor.
  • Insolvency regulator: The Insolvency and Bankruptcy Board of India will be established as a regulator to oversee functioning of IPs, insolvency professional agencies and information utilities. The Board will have 10 members, including representatives from the central government and the Reserve Bank of India.
  • Adjudicatory Authorities: The Code proposes two tribunals to adjudicate insolvency resolution cases:

• The National Company Law Tribunal will adjudicate cases for companies and limited liability partnerships. 
• The Debt Recovery Tribunal will adjudicate cases for individuals and partnership firms.

  • Insolvency and Bankruptcy Fund: The Code creates an Insolvency and Bankruptcy Fund. The Fund will receive voluntary contributions from any person. In case of insolvency proceedings being initiated against the contributor, he will be allowed to withdraw his contribution for making payments to workmen, protecting his assets, etc.
  • Cross-border insolvency: Cross border insolvency relates to an insolvent debtor who has assets abroad. The central government may enter into agreements with other countries to enforce provisions of the Code.

 


Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.

http://www.drishtiias.com/upsc-current-affairs-article-Financial-Resolution-and-Deposit-Insurance-Bill-2017