New Delhi, June 14, 2017

New entity for deposit insurance

After putting in place a legal framework to resolve insolvency in non-financial entities, the Centre has moved a step closer towards creating a similar apparatus for specified financial sector bodies such as banks and insurance companies.

The Cabinet on Wednesday gave its nod for the introduction of the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI), in Parliament.

It will create a framework to deal with bankruptcy in banks, insurance companies and financial sector entities. Once enacted, it will also lead to the establishment of a Resolution Corporation.

The proposal is aimed at giving comfort to consumers of financial service providers in instances of any financial distress by strengthening and streamlining the current framework of deposit insurance for retail depositors.

According to an official statement, the Bill will also result in the repeal of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, and the transfer of deposit insurance powers and responsibilities to the Resolution Corporation.

The Resolution Corporation will protect the stability and resilience of the financial system by protecting consumers of covered obligations up to a “reasonable limit” and by protecting public funds “to the extent possible,” an official release said.

The Bill also seeks to cut down the time and costs involved in resolving the problem of distressed entities.

[The Hindu Business Line]