A note released today by the Union Finance Ministry on the recommendations of the Committee to draft a Code on Resolution of Financial Firms draws attention to the Insolvency and Bankruptcy Code, 2016 enacted by the Parliament earlier this year, which provides for resolution and liquidation of non-financial firms. It has been underscored in the basis of recent experience and research that resolution of financial institutions requires a special regime that is faster than any traditional insolvency procedure, where rights of the creditors and other stakeholders can be overridden in the interest of the financial system (including the consumers) and the economy.
The draft Bill proposes to establish a special resolution regime, in line with international best practices, for financial firms, including banks, insurance companies, financial market infrastructures, payment systems, and other financial service providers.
Under the Proposed Bill, the general direction and management of the Corporation will be conferred on the Board of the Resolution Corporation. This Board will comprise of representatives from financial sector regulators, like, RBI, SEBI, IRDAI and PFRDA; representatives of the Central Government as well as two independent members.
The draft Bill consolidates the existing laws relating to resolution of certain categories of financial institutions (“covered service providers”), including banks, insurance companies, financial market infrastructures, payment systems, and other financial service providers (excluding individuals and partnership firms) which are presently scattered in a number of legislations, into a single legislation, and provides for additional tools of resolution,to enable the new authority (“Resolution Corporation”) to maintain the systemic stability in the country.