Although the Union government, in August 2018, had withdrawn the Financial Resolution and Deposit Insurance Bill (FRDI Bill), it has not decided to bring a new law to provide for a legal framework for resolution of financial institutions, says finance minister (FM) Nirmala Sitharaman.
In a written reply in the Lok Sabha, the FM said, "... (FRDI) was referred to the Joint Committee of Parliament (JPC) for examination and report thereon.
"The main objective of the FRDI Bill was to create a specialised resolution mechanism for select financial sector entities. The government had withdrawn the FRDI Bill in August 2018 for further comprehensive examination and reconsideration of the subject."
Members of Parliament (MPs) P Velusamy and K Shanmuga Sundaram had asked if the government has withdrawn the FRDI Bill due to its controversial provision of bail-in that was perceived as undermining the safety of depositors and if the government is consulting the Reserve Bank of India (RBI) for drafting fresh legislation to deal with the insolvency of financial institutions.
These MPs also asked for details of the steps taken by the ministry of finance to secure the interest and safety of the depositors.
Ms Sitharaman, the FM, replied, "...the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 was amended in August 2021 with a view to address concerns about difficulties faced by depositors from accessing their own deposits due to imposition of restrictions on withdrawal of deposits placed by the RBI and provide that depositors can get easy and time-bound access to their deposits to the extent of deposit insurance cover through interim payments by DICGC."
On 4 February 2020, DICGC raised the insurance cover limit for depositors in insured banks to Rs5 lakh from the level of Rs1 lakh per depositor.
The MPs also asked whether the government plans to bring comprehensive legislation to deal with the non-banking financial companies (NBFCs).
The FM informed the lower house that on 15 November 2019, the Union government notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules to provide a generic framework for insolvency and liquidation proceedings of systemically important financial service-providers (FSPs) other than banks.
Subsequently, the government, vide notification dated 18 November 2019, also notified that the insolvency resolution and liquidation proceedings of the NBFCs, including housing finance companies (HFCs) with asset size of Rs500 crore or more, would be undertaken in accordance with the provisions of the Insolvency and Bankruptcy Code (IBC).
"Accordingly, the framework to deal with the select NBFCs is already in place under IBC," the minister said.