India: The Financial Resolution And Deposit Insurance Bill, 2016

Last Updated: 10 October 2016
Article by HSA Advocates

The committee set up to draft a Code on Resolution of Financial Firms ("Committee"), by the Ministry of Finance, Government of India, on September 28, 2016, released a draft bill – The Financial Resolution and Deposit Insurance Bill, 2016 (the "Draft Bill"), seeking comments from the public. The Draft Bill inter alia proposes to (a) provide speedy and efficient resolution of financial firms in distress, (b) establish a resolution corporation, (c) deposit insurance to consumers of certain categories of financial services, etc. While the Insolvency and Bankruptcy Code, 2016 provides for resolution and liquidation of non-financial firms, the Draft Bill proposes to establish a similar special resolution regime to deal with insolvency issues of banks, insurance firms, and other financial sector entities.

The salient features of the revised Circular are as follows:

  • (i) Preamble and Objective : Consolidates existing laws relating to resolution of financial service providers in financial distress, such as banks (excluding eligible co-operative banks as defined under the Draft Bill), insurance companies, financial market infrastructures, payment systems, non-banking financial companies, systemically important financial institutions ("SIFIs") (collectively "covered service providers"), holding companies of covered service providers, non-regulated operational entities within a financial group or conglomerate of covered service providers, branch offices of body corporates incorporated outside India and carrying on the business of providing financial services in India, and any other financial service providers (excluding individuals and partnership firms), into a single legislation to enable the new authority ("Resolution Corporation") to maintain the systemic stability of the country.
  • (ii) Resolution Corporation : The Draft Bill proposes for setting up the Resolution Corporation, with its head office at Mumbai comprising of representatives from financial sector regulators like, the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India and the Pension Fund Regulatory and Development Authority; representatives of the Central Government as well as two independent members.
  • (iii) Powers and Functions : The Resolution Corporation is proposed to be empowered to (a) carry out speedy and efficient resolution of financial firms in distress in line with international best practices, (b) provide for deposit of insurance to consumers of certain categories of financial services, (c) monitor SIFIs, and (d) protect consumers of financial service providers and public funds to the extent possible. Special provisions in relation to resolution of central counterparties because of their unique status in the financial system have also been envisaged.
  • (iv) Funds : Resolution Corporation to have (i) the Corporation Insurance Fund for payment of deposit insurance; (ii) the Corporation Resolution Fund for covering resolution fees; and (iii) the Corporation General Fund for administrative expenses of the Resolution Corporation. Covered service providers shall also be required to pay fees, as specified by the Resolution Corporation.
  • (v) Systemically Important Financial Institutions : SIFIs are financial service providers whose failure might pose a risk to their consumers, the sector they operate in, as well as the overall financial stability of the country. Certain categories of financial service providers may be designated as SIFIs by the Central Government, in consultation with sectoral regulators. The criteria for designation of a financial service provider as a SIFI includes taking into consideration the size, complexity, nature and volume of transactions with other financial service providers and interconnectedness with other financial service providers. SIFIs once designated, are required to submit a resolution and restoration plan as approved by the sectoral regulator, within 90 (ninety) days of such designation, and such other information as may be specified by the Resolution Corporation, to monitor the safety, solvency and soundness of the SIFI. If the SIFI ceases to meet the criteria specified under the Draft Bill, the Central Government may de-designate such a SIFI by recording reasons in writing.
  • (vi) Risk to viability :
  • (a) The Resolution Corporation, in consultation with the concerned financial sector regulator(s) ("Appropriate Regulator") will specify objective criteria for classification of covered service providers into the five categories, namely, low, moderate, material, imminent and critical, after taking into account several features of covered service providers, including adequacy of capital, asset quality, leverage ratio, liquidity and capability of management.
  • (b) Classification of a covered service provider as low, moderate or material, can be done by the Appropriate Regulator. Any difference in opinion between the Appropriate Regulator and the Resolution Corporation while classifying a covered service provider as "material", shall be resolved by a consultation process for final determination by the Resolution Corporation. Classification of a covered service provider as imminent or critical can be done by the Appropriate Regulator or the Resolution Corporation, as the case may be.
  • (c) Classification of a central counterparty (i.e. an entity interposing itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and vice versa, ensuring performance of open contracts, including system providers operating as central counterparties under the Payment and Settlement Systems Act, 2007 and clearing corporations as provided under the Securities Contract Regulation Act, 1956) as having "imminent risk to viability", can be done only by the Appropriate Regulator by recording reasons thereto with the Resolution Corporation within 15 (fifteen) days of such classification.
  • (vii) Resolution and Restoration : If a covered service provider is classified as material or imminent risk to viability, as the case maybe, such covered service provider shall prepare and submit a restoration plan and resolution plan, to the sectoral regulator and the Resolution Corporation, respectively, within 30 (thirty) days of such classification. These plans are required to be periodically updated and all changes are required to be notified to the Resolution Corporation and the Appropriate Regulator.

A copy of every resolution plan submitted (by covered service providers) to the Resolution Corporation will be sent to the sectoral regulator and a copy of every restoration plan submitted (by covered service providers) to the sectoral regulator will be sent to the Resolution Corporation within 15 (fifteen) days of receipt thereof. The resolution and restoration plans are required to be updated every 6 (six) months.

  • (viii) Methods of resolution : The Resolution Corporation may resolve a covered service provider by, inter alia, transferring the assets and liabilities of the covered service provider to another person, creating a bridge service provider as per the Draft Bill, merger/amalgamation, acquisition, liquidation, bail-in, or a combination of all or any of these methods.
  • (ix) Timelines : The process of resolution (except liquidation under the Draft Bill), is required to be completed no later than 2 (two) years from the date on which the covered service provider is classified to be at critical risk to viability, with an extension of the time period by 1 (one) year by the Board of the Resolution Corporation. If the resolution of a covered service provider is not completed within the aforesaid timelines, the Resolution Corporation shall liquidate the covered service provider as per the provisions of the Draft Bill.
  • (x) Stay on Termination Rights : Resolution Corporation is also empowered to temporarily stay the operation of any early termination rights in respect of contracts, if such rights are triggered solely due to entry of a covered service provider into resolution.
  • (xi) Cross Border Resolution : The Central Government and the Resolution Corporation, with the prior approval of the Central Government, can enter into a memorandum of understanding with the governments and regulators of other countries and exchange information with them to give full effect to the provisions of the Draft Bill.
  • (xii) Additionally, the Draft Bill also provides various tools for resolving a covered service provider, appointment of the Resolution Corporation as a receiver of the covered service provider and liquidation of the covered service provider.

HSA Comments

The Draft Bill seeks to consolidate and amend several existing legislations dealing with insolvency/winding up of covered service providers in distress and aims to provide a comprehensive resolution framework applicable to various financial service providers, while safeguarding the interests of depositors of insured service providers by giving priority to such depositors (covered under deposit insurance) over other category of dues including, the cost of the Resolution Corporation, claim of other secured creditors, workmen's dues, etc.

An important feature of the Draft Bill is that it may be enforced in a foreign country, if the Indian government has entered into an agreement with such foreign country and its regulators.

The Draft Bill proposes major financial reforms, however, effective implementation will depend not only on strong legal and political backing and professional capabilities of the Resolution Corporation, but also on the leadership of the Resolution Corporation.

For complete text of the Draft Bill, please click here.. For complete text of the note on summary of the recommendations of the Committee, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.