The committee appointed by the finance ministry, chaired by Ajay Tyagi had proposed to set up a Resolution Corporation to deal with the matters of the insolvency of banks, financial institutions and insurers on Wednesday.
This corporation will be responsible for providing deposit insurance and to draft code on the resolution of financial firms.
In order to set up a Special Resolution Regime for the financial firms, Govt has come up with New bill.
“The Draft Bill envisages the setting up of a resolution corporation with its head office in Mumbai. As proposed the general direction and management of the corporation will be conferred on the Board of Resolution Corporation. This board will comprise representatives from financial sector regulators like RBI, SBI, IRDAI and PFRDA; representatives of central govt as well as two independent members”, Finance Ministry said.
“Recent experience and research have shown that resolution of financial institutions requires a special regime that is faster than any traditional insolvency procedure, where rights of the creditors and official stakeholders can be overridden for the interest of financial system and the economy”, it said.
“Financial Resolution and Deposit Insurance Bill, 2016” is the bill that it has announced. It proposes that upon an application by a new resolution authority, the National Company Law Tribunal will have to pass an order of liquidation within 14 days of application. And a Corporation will have to be appointed as liquidator. Tribunal’s order can be appealed in the Supreme court within 45 days of above ruling.
The bill has amalgamated certain laws relating the resolution of financial institutions including banks, insurance company, financial market infrastructures, payment systems and other financial service providers into a single legislation.
About the New Bill for Financial Firms
- Tribunal order can be appealed to the Supreme Court on a question of law within 45 days
- The National Company Law Tribunal will pass an order to liquidation within 14 days of application
- Resolution Corporation will receive the claims of all the consumers and creditors within a period of 90 days from the date of commencement of liquidation process
With this the financial system will be made more resilient and stable, it said. The resolution of firms in need will be carried out with ease with this bill. Special provisions have been made in the bill regarding central counterparties because of their unique status in the financial system.