What is FRDI Bill 2017 – Union Cabinet meet, Chaired by PM Narendra Modi approved the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, yet to be introduced in the Parliament. This Bill is similar to the Insolvency and Bankruptcy Code, 2016, which was enacted last year in May.
FRDI Bill deal with insolvency and bankruptcy in financial sector companies covering all financial service providers including banks, NBFCs, microfinance institutions and insurance companies.The insolvency code Act deals with companies in all other sectors.
What is FRDI Bill 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.
[Also Read : Bank Unions approach Jaitley for FRDI bill withdrawl ]
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.
What FRDI bill offers : Key objectives
FRDI Bill, 2017 seeks to protect customers of financial service providers in times of financial distress.
It 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 would help in maintaining financial stability in the economy by ensuring adequate preventive measures.
The Bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of retail depositors.
It seeks to decrease the time and costs involved in resolving distressed financial entities. Once enacted, a resolution corporation will be setup to strengthen the stability and resilience of the entities in the financial sector.
Salient features of the FRDI Bill 2017 :
Resolution Corporation :
The principle agency under this bill is the Resolution Corporation. The agency will have multiple roles of supervision and oversight from a viability perspective, receiver in case of entities for which resolution plan is to be prepared. The Resolution Corporation will also act liquidator or receiver in the case of liquidation of entities classified as having imminent risk entities to ensure quick payments to depositors and settle the claims of debtors and equity holders.
Covered Service Provider :
FRDI Bill provides for the resolution of covered service provider as listed in the Schedule 2. Under the FRDI Bill, the powers and functions of the Resolution Corporation are applicable to covered service provider. Such covered service providers, among others, include
– any banking institution
– any insurance company
– any other financial service provider excluding individuals and partnership firms.
– Indian branches of foreign banks also covered under it.
Systemically Important Financial Institutions (“SIFIs”) :
The FRDI Bill provides for designation of certain categories of financial institutions as SIFls by the Central Government. Such designated financial institutions may or may not be a covered service provider and once designated all the provisions of the Act will be applicable to them. There will be some special provision in case of SIFI.
Time limit on Resolution :
Any process of resolution of a covered service provider shall be completed within a period of two years from the date on which such entity is classified to be at critical risk to viability. However, such period of two years may be extended for up to one year.
Consolidation of existing laws relating to resolution of certain categories of financial institutions :
FRDI Bill proposes to consolidate the existing laws relating to resolution of certain categories of financial institutions, including banks, insurance companies, financial market infrastructures, payment systems, and other financial service providers into a single legislation.
Closure of Deposit Insurance and Credit Guarantee Corporation (‘DICGC’) Act, 1961 :
The FRDI Bill also 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.
Cross Border Resolution :
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.
Benefits of FRDI Bill, 2017
The Bill can benefit a large number of retail depositors as it seeks to decrease the time and costs involved in resolving distressed financial entities. Help in maintaining financial stability in the economy by ensuring adequate preventive measures, as well as provide necessary instruments in an event of crisis. Once implemented, this Bill together with the Code will provide a comprehensive resolution framework for the economy.
Bill envisages inculcating discipline among financial service providers in the event of financial crisis.
Improve financial inclusion and increase access to credit, which may lead to the reduction of the cost for obtaining credit.
Increased access to finance enhances enterprise growth, which in turn leads to preserving employment, growth and the creation of new job opportunities.