Govt to table bankruptcy law for NBFCs, MFIs in monsoon session of Parliament

New Delhi: The government is likely to introduce in the monsoon session of Parliament a separate bankruptcy law to deal with insolvency in financial sector companies that include banks and non-banking financial companies (NBFCs).

The proposed bill will cover all financial service providers that include banks, NBFCs and microfinance institutions (MFIs) which have money deposited, a senior finance ministry official has said. The law will help safeguard the interest of depositors, he added. The Insolvency and Bankruptcy Code (IBC) 2016 was passed by Parliament last year to deal with cases of corporate or companies other than the financial sector. “The proposed legislation for resolution of bankruptcy in financial firms are under works and our endeavour is to introduce in the upcoming monsoon session of Parliament,” the official said.

“Financial firms by their nature and characteristics have depositor money as well. So, an appropriate resolution processes for orderly winding down of financial firms is not an easy process,” the official said, adding, extensive consultations with various stakeholders are on to make a watertight law. A finance ministry committee has suggested a “resolution corporation” to expeditiously deal with issues concerning insolvency of financial institutions, including banks and insurers. The draft code on resolution of financial firms also proposed to consolidate the existing laws relating to resolution of certain categories of financial institutions, including banks, insurance companies, financial market infrastructures, payment systems and other financial service providers into a single legislation, and to provide for additional tools of resolution to enable the resolution corporation to maintain the systemic stability in the country.

The proposed resolution corporation will contribute to the stability and resilience of the financial system by carrying out speedy and efficient resolution of financial firms in distress, providing deposit insurance to consumers of certain categories of financial services and monitoring the systemically important financial institutions. It will also protect consumers of financial institutions and public funds to the extent possible. After enactment of the Financial Resolution and Deposit Insurance Bill 2016, the Deposit Insurance and Credit Guarantee Corporation will be dissolved and all its functions will be carried out by the resolution corporation.

Finance minister Arun Jaitley, in his 2016-17 budget speech, had said that a comprehensive code on resolution of insolvency cases in financial firms will be introduced as a bill in Parliament this fiscal. “A systemic vacuum exists with regard to bankruptcy situations in financial firms. This code will provide a specialised resolution mechanism to deal with bankruptcy situations in banks, insurance firms and financial sector entities… This code, together with the Insolvency and Bankruptcy Code 2015, when enacted, will provide a comprehensive resolution mechanism for our economy,” he had said.

First Published: Tue, May 23 2017. 08 52 PM IST

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