There exist some provisions contained in various Acts governing the respective financial institutions that empower the respective regulators or supervisors and/or the Union Government to resolve different types of financial institutions in the country once they run into viability problems. In order to bridge the gaps and develop an effective resolution regime for all financial institutions in line with the key attributes, a group has made wide-ranging recommendations, taking into consideration the international best practices and work in major advanced jurisdictions as also the recommendations given by the Financial Sector Legislative Reforms Commission (FSLRC).
The sub-committee of the Financial Stability and Development Council (FSDC) constituted a high level working group with Anand Sinha, former Deputy Governor of the RBI as chairman and Arvind Mayaram, secretary in the Department of Economic Affairs, Ministry of Finance, as co-chairman to suggest extensive strengthening of the resolution regime, considering the structure of Indian financial institutions and the Financial Stability Board`s key attributes of effective resolution regime for financial institutions. The group has submitted its report to the Governor of RBI and Chairman of the Sub-Committee of FSDC.
The group emphasises the need for a separate comprehensive legal framework providing the necessary powers and tools to resolve all financial institutions irrespective of ownership, and setting up of a single Financial Resolution Authority (FRA) that is institutionally independent of regulators/government. The group recommends putting in place an early intervention mechanism in the form of a Prompt Corrective Action (PCA) framework with clear trigger levels for regulatory intervention in the early stages and for handing over to the resolution authority for initiating appropriate actions in the last stage.
The Report of the working group on resolution regime for financial institutions has been placed in the website of Ministry of Finance/RBI/SEBI/IRDA/PFRDA/FMC to invite public comments. The comments, if any, on the recommendations of the report may be e-mailed to [email protected] or sent by post to the Principal Chief General Manager, Reserve Bank of India, Department of Banking Operations and Development, 12th Floor, Central Office Building, Shahid Bhagat Sing Marg, Fort, Mumbai 400 001 on or before 31 May. [Press Information Bureau]