FRDI Bill, 2017 – Key Features

As the title of the bill suggests, the FRDI Bill 2017 seeks to provide for a comprehensive legal resolution framework for banks, insurance companies and other financial sector entities to deal with bankruptcy situation. Once enacted, it will pave the way for the creation of the Resolution Corporation under the Reserve Bank of India (RBI) by repealing the existing Deposit Insurance and Credit Guarantee Corporation. The Corporation was created by the Parliament in 1961 as a subsidiary of the Reserve Bank of India (RBI).
As per the FRDI Bill 2017, the Resolution Corporation’s primary mandate is to protect the stability and resilience of the financial system and decrease the time and costs involved in resolving distressed financial entities. The Corporation also seeks to protect the interests of the depositors to the extent possible.
The bill empowers the proposed Resolution Corporation to assess the financial entities from time to time and classify the crisis hit firms depending on the degree of vulnerability. The categories of bankrupt entities will be that having - Material risk to viability, Imminent risk to the viability and Critical risk to viability. The Corporation has been given powers to issue directives to the ailing entities on the steps to be taken to contain the downward trend. Once, an entity declared as having ‘Critical Risk to Viability’, the Corporation will overtake the management of the firm and complete the resolution process within two years.
The FRBI Bill complements the existing Insolvency and Bankruptcy Code, 2016 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.