ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Inducing Financial Instability

FRDI Bill, 2017

Given the far-reaching nature of the changes it seeks to introduce within the financial system, the Financial Resolution and Deposit Insurance Bill should not be rushed through Parliament. Widespread apprehensions regarding provisions of the FRDI Bill, particularly the bail-in provision, have already forced the government to pause. It is only appropriate that an informed public debate precedes the tabling of this legislation for passage, which can signifi cantly alter the contours of India’s financial sector.

The principal objective of the Financial Resolution and Deposit Insurance (FRDI) Bill, introduced in the Lok Sabha in August 2017, is to provide a framework for the resolution of failures of financial institutions, covering the entire financial sector. The bill seeks to establish an all-encompassing Resolution Corporation (RC), which will have powers to acquire and transfer the assets or even liquidate any financial service provider in the case of its probable failure—be it a commercial, regional or cooperative bank, an insurance company, a payment system operator, a non-banking financial company (NBFC), a mutual or pension fund, or a securities firm. The FRDI Bill also seeks to repeal the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 and delegate to the RC, the powers of insuring deposits, collecting premium, and compensating depositors of an insured service provider in case of liquidation.

Presently, the various segments of the large and diverse financial sector in India are regulated by different institutions, like the Reserve Bank of India (RBI) for the banks and the NBFCs, the Insurance Regulatory and Development Authority (IRDA) for the insurance sector, the Securities and Exchange Board of India (SEBI) for securities firms and mutual funds, and the Pension Fund Regulatory and Development Authority (PFRDA) for pension funds, all governed by various acts of Parliament. The public sector banks (PSBs), which have emerged as the most dominant financial institutions in India since bank nationalisation, with around 70% share in total banking assets and above 40% share in total financial assets,1 are governed by separate legislations as are the insurance companies in the public sector.

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Updated On : 22nd Jan, 2018

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