Although the 2007-08 financial crises wreaked havoc across the board, it also served as a catalyst for change. Overwhelmed by the financial ramifications of their impudent behaviour, many financial institutions found themselves on the verge of going bust. Their lack of preparedness in dealing with such a financial catastrophe put billions of dollars’ worth of bank deposits at risk. Although the financial institutions were bailed out by the taxpayers’ money, it exposed the hollowness in their incumbent insolvency mechanisms.
To prevent such a situation from recurring, several economies have revamped their insolvency mechanisms for financial institutions. Taking cognizance of its hypersensitive financial sector, the Indian government has also tabled the Financial Resolution and Deposit Insurance Bill before the Parliament.
Although certain provisions of the Bill have received a hostile response from the media, this article seeks to separate the facts from fiction. This article seeks to highlight certain significant provisions of the Bill which merit the readers’ attention. Further, this article would also mention the criticisms and recommendations forwarded to the drafting committee by other regulatory stakeholders. While the Bill adopts a two-pronged approach to protect the interests of financial institutions and their associated depositories, its success hinges on how well it reconciles the interests of all the affected stakeholders.