Resolution regime needed for financial sector entities

Following the Insolvency and Bankruptcy Code, 2016, which applies to individuals and non-financial entities, the Financial Resolution and Deposit Insurance Bill, 2017, aims to provide a resolution regime for financial sector entities. The bill was introduced in parliament in August, and currently is pending examination by a joint committee of parliament.

The bill applies to all “specified service providers”, defined as banks, financial institutions, insurance companies, payment systems, holding companies of specified service providers, and unregulated entities in corporate groups providing financial services, including a “systemically important financial institution” (SIFI) and the Indian branches of overseas bodies corporate. The last is a welcome addition as it addresses an oft discussed legal grey area and the impact of a cross-border insolvency on Indian depositors.

The bill proposes to establish a “resolution corporation” (RC) to ensure orderly liquidation and resolution of troubled financial sector entities. The RC would have powers such as search and seizure and the power to enter premises of specified service providers in certain cases.

Sawant Singh and Aditya Bhargava are partners at the Mumbai office of Phoenix Legal.