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Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 seeks to protect and enhance the depositorsí existing rights and bring in a comprehensive and efficient resolution regime for financial firms

News and Press Release - Dated:- 2-1-2018 - Rationale for the Financial Resolution and Deposit Insurance Bill, 2017 There is no comprehensive and integrated legal framework for resolution, including liquidation, of financial firms in India presently. The powers and responsibilities for resolution of financial services providers are given under multiple laws to regulators, Government and the Courts, which does not facilitate development of specialised resolution capabilities. Also, because of thi .....

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management, or impose moratorium and recommend mandatory mergers. In the case of a bank, typically either of the two methods of resolution has been used, that is, amalgamation or merger of a weak bank with another bank; or winding up of the bank. Other resolution instruments are not available. The Central Government has the power to restructure public sector banks, and regional rural banks. Non-banking financial companies can be liquidated or wound up under law by High Courts only, either volun .....

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ion regime for mainly non-financial firms, but such a regime is not available in the country for financial firms. The Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill) will replace the existing resolution regime by providing a comprehensive resolution regime that will help ensure that, in the rare event of failure of a financial service provider, there is a system of quick, orderly and efficient resolution in favour of depositors. The impact of failures of financial services prov .....

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an lead to losses for consumers, or instability in the financial system. The FRDI Bill proposes toestablish a Resolution Corporation and a comprehensive resolution regime to enable timely and orderly resolution of a failing financial firm. Such institutional framework for expeditious resolution of financial firms exists in most other comparable countries. Further, it is favourable for depositors if in case of bank failures, a bank is resolved rather than liquidated, because the depositors are ex .....

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be no option but to resolve or liquidate the financial firm. FRDI Bill also introduces a menu of resolution tools, including transfer of whole or parts of the assets and liabilities of a financial firm to another person, acquisition, merger or amalgamation, bridge service provider, and bail-in, and mandates recovery and resolution planning obligations to enable careful monitoring of risk to viability of a financial firm. The FRDI Bill also transfers the deposit insurance functions from the Depo .....

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377; 1 lakh. The similar protection would continue under the FRDI Bill and the Resolution Corporation is empowered to increase the deposit insurance amount. The uninsured depositors, that is, beyond ₹ 1 lakh, of a banking company are treated on par with unsecured creditors under the present law and paid after preferential dues, including Government dues, in the event of its liquidation. As per the provisions of the FRDI Bill, the claims of uninsured depositors in the case of liquidation of .....

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d soundness, as well as systemic stability. The existing laws ensure the integrity, security and safety of the banking system. In India, all possible steps and policy measures are taken to prevent the failure of banks and protection of interests of depositors (e.g. issue of directions / prompt corrective action measures, capital adequacy and prudential norms). Bail in has been proposed as one of the resolution tools in the event a financial firm is sought to be sustained by resolution. Certain m .....

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and bridge service provider, and is to be used either singly or in combination with other tools. Bail in provision may not be required to be used in case of any specific resolution. Most certainly, it will not be used in case of a public sector bank as such a contingency is not likely to arise. Following formal safeguards have been built in the FRDI Bill pertaining to the appropriate use of bail-in, whereas the rights or interests of depositors can be, inter-alia, reduced in case of forced merg .....

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