The Financial Resolution and Deposit Insurance Bill, 2017 was introduced in Parliament during Monsoon Session 2017.[1]   The Bill proposes to create a framework for monitoring financial firms such as banks, insurance companies, and stock exchanges; pre-empt risk to their financial position; and resolve them if they fail to honour their obligations (such as repaying depositors).  To ensure continuity of a failing firm, it may be resolved by merging it with another firm, transferring its assets and liabilities, or reducing its debt.  If resolution is found to be unviable, the firm may be liquidated, and its assets sold to repay its creditors.

After introduction, the Bill was referred to a Joint Committee of Parliament for examination, and the Committee’s report is expected in the Winter Session 2017.  The Committee has been inviting stakeholders to give their inputs on the Bill, consulting experts, and undertaking study tours.  In this context, we discuss the provisions of the Bill and some issues for consideration.

What are financial firms?

Financial firms include banks, insurance companies, and stock exchanges, among others.  These firms accept deposits from consumers, channel these deposits into investments, provide loans, and manage payment systems that facilitate transactions in the country.  These firms are an integral part of the financial system, and since they transact with each other, their failure may have an adverse impact on financial stability and result in consumers losing their deposits and investments.

As witnessed in 2008, the failure of a firm (Lehman Brothers) impacted the financial system across the world, and triggered a global financial crisis.  After the crisis, various countries have sought to consolidate their laws to develop specialised capabilities for resolving failure of financial firms and to prevent the occurrence of another crisis. [2]

What is the current framework to resolve financial firms? What does the Bill propose?

Currently, there is no specialised law for the resolution of financial firms in India.  Provisions to resolve failure of financial firms are found scattered across different laws.2  Resolution or winding up of firms is managed by the regulators for various kinds of financial firms (i.e. the Reserve Bank of India (RBI) for banks, the Insurance Regulatory and Development Authority (IRDA) for insurance companies, and the Securities and Exchange Board of India (SEBI) for stock exchanges.)  However, under the current framework, powers of these regulators to resolve similar entities may vary (e.g. RBI has powers to wind-up or merge scheduled commercial banks, but not co-operative banks.)

The Bill seeks to create a consolidated framework for the resolution of financial firms by creating a Resolution Corporation. The Resolution Corporation will include representatives from all financial sector regulators and the ministry of finance, among others.  The Corporation will monitor these firms to pre-empt failure, and resolve or liquidate them in case of such failure.

How does the Resolution Corporation monitor and prevent failure of financial firms?

Risk based classification: The Resolution Corporation or the regulators (such as the RBI for banks, IRDA for insurance companies or SEBI for the stock exchanges) will classify financial firms under five categories, based on their risk of failure (see Figure 1).  This classification will be based on adequacy of capital, assets and liabilities, and capability of management, among other criteria.  The Bill proposes to allow both, the regulator and the Corporation, to monitor and classify firms based on their risk to failure.

Corrective Action:  Based on the risk to failure, the Resolution Corporation or regulators may direct the firms to take certain corrective action.  For example, if the firm is at a higher risk to failure (under ‘material’ or ‘imminent’ categories), the Resolution Corporation or the regulator may: (i) prevent it from accepting deposits from consumers, (ii) prohibit the firm from acquiring other businesses, or (iii) require it to increase its capital.  Further, these firms will formulate resolution and restoration plans to prepare a strategy for improving their financial position and resolving the firm in case it fails.

While the Bill specifies that the financial firms will be classified based on risk, it does not provide a mechanism for these firms to appeal this decision.   One argument to not allow an appeal may be that certain decisions of the Corporation may require urgent action to prevent the financial firm from failing. However, this may leave aggrieved persons without a recourse to challenge the decision of the Corporation if they are unsatisfied.

Figure 1: Monitoring and resolution of financial firmsFig 1 edited

Sources: The Financial Resolution and Deposit Insurance Bill, 2017; PRS.


How will the Resolution Corporation resolve financial firms that have failed?

The Resolution Corporation will take over the administration of a financial firm from the date of its classification as  ‘critical’ (i.e. if it is on the verge of failure.)  The Resolution Corporation will resolve the firm using any of the methods specified in the Bill, within one year.  This time limit may be extended by another year (i.e. maximum limit of two years).   During this period, the firm will be immune against all legal actions.

The Resolution Corporation can resolve a financial firm using any of the following methods: (i) transferring the assets and liabilities of the firm to another firm, (ii) merger or acquisition of the firm, (iii) creating a bridge financial firm (where a new company is created to take over the assets, liabilities and management of the failing firm), (iv) bail-in (internally transferring or converting the debt of the firm), or (v) liquidate the firm to repay its creditors.

If the Resolution Corporation fails to resolve the firm within a maximum period of two years, the firm will automatically go in for liquidation.  The Bill specifies the order of priority in which creditors will be repaid in case of liquidation, with the amount paid to depositors as deposit insurance getting preference over other creditors.

While the Bill specifies that resolution will commence upon classification as ‘critical’, the point at which this process will end may not be evident in certain cases.  For example, in case of transfer, merger or liquidation, the end of the process may be inferred from when the operations are transferred or liquidation is completed, but for some other methods such as bail-in, the point at which the resolution process will be completed may be unclear.

Does the Bill guarantee the repayment of bank deposits?

The Resolution Corporation will provide deposit insurance to banks up to a certain limit.  This implies, that the Corporation will guarantee the repayment of a certain amount to each depositor in case the bank fails.  Currently, the Deposit Insurance and Credit Guarantee Corporation (DICGC) provides deposit insurance for bank deposits up to 1 lakh rupees per depositor.[3]  The Bill proposes to subsume the functions of the DICGC under the Resolution Corporation.

[1].  The Financial Resolution and Deposit Insurance Bill, 2017,,%202017/Financial%20Resolution%20Bill,%202017.pdf

[2]. Report of the Committee to Draft Code on Resolution of Financial Firms, September 2016,,%202017/FRDI%20Bill%20Drafting%20Committee%20Report.pdf

[3]. The Deposit Insurance and Credit Guarantee Corporation Act, 1961,,%202017/DICGC%20Act,%

On March 14, 2022 Rajya Sabha discussed the working of the Ministry of Development of North Eastern Region (DoNER).  During the discussion, several issues around budgetary allocation, implementation of schemes and connectivity with the North Eastern Region were discussed.  The Ministry of DoNER is responsible for matters relating to the planning, execution and monitoring of development schemes and projects in the North Eastern Region.  In this blog post, we analyse the 2022-23 budgetary allocations for the Ministry and discuss related issues.  

A new scheme named PM-DevINE announced to boost infrastructure and social development

In 2022-23, the Ministry has seen a 5% increase in allocation from the revised estimates of 2021-22.  The Ministry has been allocated Rs 2,800 crore which will be used for various development schemes, such as the North East Special Infrastructure Development Scheme and North East Road Sector Development Scheme.  A scheme-wise break-up of the budget allocation for the Ministry is given below in Table 1.  

One of the key highlights of the Finance Minister’s Budget Speech was the announcement of a new scheme named the Prime Minister’s Development Initiative for North East (PM-DevINE).  It will be implemented through the North East Council (nodal agency for the economic and social development of the North Eastern Region).  PM-DevINE will fund infrastructure and social development projects in areas such as road connectivity, health, and agriculture.  The scheme will not replace or subsume existing central sector or centrally sponsored schemes.  The Scheme will be given an initial allocation of Rs 1,500 crore.

Table 1: Break-up of allocation to the Ministry of DoNER (in Rs crore)

Major Heads

2020-21 Actuals

2021-22 BE

2021-22 RE

2022-23 BE

% change from 2021-22 RE to 2022-23 BE

North East Special Infrastructure Development Scheme






Schemes of North East Council






North East Road Sector Development Scheme






Central pool of resources for North East and Sikkim


































Note: BE – Budget Estimate; RE – Revised Estimate; Schemes for North East Council includes Special Development Projects.

Sources: Demand No. 23 of Union Budget Documents 2022-23; PRS. 

Allocation towards capital outlay less than demand

The Standing Committee on Home Affairs (2022) noted that the amount allocated at the budget stage in 2022-23 (Rs 660 crore) was 17% less than the demand by the Ministry (Rs 794 crore).  Capital expenditure includes capital outlay which leads to the creation of assets such as schools, hospitals, and roads and bridges.  The Committee observed that this may severely affect the implementation of several projects and schemes that require capital outlay.  It recommended the Ministry to take up this matter with the Finance Ministry and demand additional assistance at the revised stage of the 2022-23 financial year.

Underutilisation of funds over the years

Since 2011-12 (barring 2016-17), the Ministry has not been able to utilise the funds allocated to it at the budgeted stage (See Figure 1).  For instance, in 2020-21, fund utilisation in case of the North East Road Sector Development Scheme was 52%, whereas only 34% of funds were utilised under the North East Special Infrastructure Development Scheme (for infrastructure projects relating to water supply, power, connectivity, social infrastructure).  Key reasons for underspending highlighted by the Ministry include late receipt of project proposals and non-receipt of utilisation certificates from state governments.

Figure 1: Underutilisation of funds by the Ministry since 2011-12

 Note: Revised Estimate has been used as the Actual Expenditure for 2021-22.
 Sources: Union Budget Documents (2011-12 to 2022-23); PRS

Delay in project completion

The Ministry implements several schemes for infrastructural projects such as roads and bridges.  The progress of the certain schemes has been inadequate.   The Standing Committee (2022) observed that the physical progress of many road sector projects under the North East Road Sector Development Scheme is either at zero or in single digit percent in spite of release of the amount for the project.  Similarly, projects under the Karbi Anglong Autonomous Territorial Council (autonomous district council in Assam) and Social and Infrastructure Development Fund (construction of roads, bridges, and construction of schools and water supply projects in the North Eastern Region) have seen inadequate progress.

Need to address declining forest cover

The Standing Committee (2021) has also recommended the Ministry of DoNER to work towards preserving forest cover.  The Committee took note of the declining forest cover in the North East India.  As per the India State of Forest Report (2021), states showing major loss of forest cover from 2019 to 2021 are: (i) Arunachal Pradesh (loss of 257 sq km of forest cover), (ii) Manipur (249 sq km), (iii) Nagaland (235 sq km), (iv) Mizoram (186 sq km), and (v) Meghalaya (73 sq km).  The loss of forest cover may be attributed to shifting cultivation, cutting down of trees, natural calamities, anthropogenic (environmental pollution) pressure, and developmental activities.  The Committee recommended that various measures to protect the forest and environment must be given priority and should implemented within the stipulated timeline.  It also suggested the Ministry to: (i) carry out regular plantation drives to increase forest cover/density, and (ii) accord priority towards the ultimate goal of preserving and protecting the forests under various centrally sponsored initiatives.

Key issues raised by Members during discussion in Rajya Sabha

The discussion on the working of the Ministry of DoNER took place in Rajya Sabha on March 14, 2022.  One of the issues highlighted by members was about the Ministry not having its own line Department.  This leads to the Ministry being dependent on the administrative strength of the states for implementation of projects.  Another issue highlighted by several members was the lack of connectivity of the region through railways and road networks which hampers the economic growth of region.  The DoNER Minister in his response to the House assured the members that the central government is making continuous efforts towards improving connectivity to the North East region through roads, railways, waterways, and telecommunication.         

Allocation by Union Ministries to the North East 

Union Ministries allocate 10% of their budget allocation for the North East (See Figure 2 for fund allocation and utilisation).  The Ministry of DoNER is the nodal Ministry that monitors and keeps track of the allocation done by various Ministries.  In 2022-23, Rs 76,040 crore has been allocated by all the Ministries for the North Eastern region.  The allocation has increased by 11% from the revised estimate of 2021-22 (Rs 68,440 crore).   In 2019-20 and 2021-21 the actual expenditure towards North Eastern areas was lower than budget estimates by 18% and 19% respectively.  

Figure 2: Budgetary allocation by all Union Ministries for the North East (amount in Rs crore)


Source: Report No. 239: Demand for Grants (2022-23) of Ministry of Development of North Eastern Region, Standing Committee on Home Affairs; PRS.