NEW DELHI: The government plans to introduce a new bill – tentatively named as Financial Sector Development and Regulation (FSDR) Bill - which will set up a resolution authority that will take over the RBI’s and other financial sector authorities’ powers to resolve cases of banks and financial institutions which go bust or are near going bust. The new authority will also decide on the quantum of deposit insurance.
The new bill will replace the older Financial Resolution and Deposit Insurance (FRDI) Bill brought two years back and withdrawn after brouhaha over a “bail-in” clause, which theoretically allowed beleaguered banks to scoop up depositors’ money to stop them from going bust. Though the new bill will not have a ‘bail-in’ clause, it will set up a resolution authority with representations from all financial sector regulators including RBI, SEBI, Insurance Regulatory and Development Authority and PFRDA, their job will be to resolve cases of banks, financial companies and insurance or pensions funds which go bust.
Bust financial firms and banks could be either amalgamated with another firm or bank or part of their liabilities could be cancelled or they could be sold off or an interim mechanism could be created while a final decision is taken. In case of significantly important financial sector players, the authority could take preemptive steps to manage delinquencies.
Although there is no bail-in clause, the authority can modify liabilities which means they can set a limit to the liabilities that would be paid out. It will also run a deposit insurance guarantee under a new name for which it will set limits, which it will periodically increase or decrease as the need arises.
The current insurance limit is for Rs 1 lakh, this is likely to go up to Rs 5 lakh, though the amount is yet to be decided.
That would be done separately by the authority and back-channel negotiations for that are currently underway, officials said.