Union Cabinet clears Bill on bankruptcy for banks


The government may introduce a bill in the forthcoming Monsoon session of Parliament to facilitate setting up of a Resolution Corporation to deal with bankruptcy in banks, insurance companies and financial entities.

The proposal to this effect received the Union Cabinet’s approval on Wednesday.

Official sources said that the Financial Resolution and Deposit Insurance Bill, 2017, which aims to instil discipline in financial service providers in the event of a financial crisis by limiting the use of public money to bail out distressed entities, was approved by the Union Cabinet.

According to an official statement issued after the Cabinet meeting, the proposed legislation will provide for a comprehensive resolution framework to handle any bankruptcy situation in banks, insurers and financial sector entities.

The Resolution Corporation would ensure the stability and resilience of the financial system, protecting the consumers of covered obligations up to a reasonable limit and public funds to the extent possible.

The government has recently enacted the Insolvency and Bankruptcy Code, 2016, for the insolvency resolution of non-financial entities.

The proposed Bill complements the Code by providing a resolution framework for the financial sector.

Once implemented, this Bill together with the Code will provide a comprehensive resolution framework for the economy.