DRESSING THE WOUNDS.......

 

 How the financial resolution and deposit insurance bill would immune the system against any possible financial infestation????

The problem of the Non-Performing Assets (NPAs) has been haunting the Indian economy for quite a long time now. It’s because of this problem that some of the biggest banks of the Indian economy have undergone huge losses to such an extent that they lost the position that they earned in all these year.

The piling bad debts have not only disfigured the balance sheets of the banks but have also muddled the growth of the India. The banks are now forced to adopt a skeptic approach while lending. As a result of which some of the potentially productive avenues remain unexplored.  Hence, it became really important both for the banks as well as the economy to adopt a quick NPA resolving process. With an aim to develop such process, the government approved the Financial Resolution and Deposit Insurance Bill (FRDIB), 2017. The new framework is expected to resolve compliances relegated to speedy winding up of NPAs and to efficiently redeploy the capital in further productive avenues. 

RBI seems to be committed to resolve this high resolution process. In view of which, it identified 12 loan accounts which are to be referred to the National Company Law Tribunal for insolvency and bankruptcy proceedings. These accounts have a net balance of Rs. 25000 crores. Obviously, treating them would be an expensive affair and would affect the financial position of the bank and the bank would require additional funds to continue their operations. Besides this, this bill will also provide deposit insurance to consumers of some specific categories of financial services up to a reasonable limit and would also monitor the Systemically Important Financial Institutions (SIFI).

While the Insolvency and Bankruptcy Code (IBC) 2016 enables both identification and resolution of NPAs, a bill like this might be proved significant to identify the underperforming banks and would enable the government to take long-term cost-effective corrective measures. Besides this, most of the businesses dealing in financial services and operating in the current market scenario carry an intrinsic risk due to the increased dynamicity of the global political and financial landscape. Hence, by covering financial institutions this bill would provide timely solution to the stakeholders of these businesses which would improve the productivity and performance of these businesses. Moreover, this bill has been designed to identify the risk of business failures while implanting discipline among such businesses in the event of any financial crisis by capping the amount of public money that can be allocated to revive the shaky institutions.

By limiting the exposure of public money, addressing the risks well in advance and by providing essential corrective measures, it’s hoped that this bill would bring much sought after financial stability in the economy in long run. Further, it aims to strengthen and consolidate the current framework of deposit insurance to benefit the retail depositors. 

However, there is still a need to have a comprehensive NPA resolution framework, in order to counter any probable financial crises in the financial institutions, bankruptcy of banks, insurers and other firms providing financial services, and to safeguard the financial system from any unforeseen systemic crises and protect consumers. The government might be waiting for the clean-up process to commence and observe how the things go under the current framework.