The Financial Resolution and Deposit Insurance Bill, 2017 was introduced in Lok Sabha during Monsoon Session 2017. The Bill is currently being examined by a Joint Committee of the two Houses of Parliament. It seeks to establish a Resolution Corporation which will monitor the risk faced by financial firms such as banks and insurance companies, and resolve them in case of failure. For FAQs explaining the regulatory framework under the Bill, please see here.
Over the last few days, there has been some discussion around provisions of the Bill which allow for cancellation or writing down of liabilities of a financial firm (known as bail-in).[1],[2] There are concerns that these provisions may put depositors in an unfavourable position in case a bank fails. In this context, we explain the bail-in process below.
What is bail-in?
The Bill specifies various tools to resolve a failing financial firm which include transferring its assets and liabilities, merging it with another firm, or liquidating it. One of these methods allows for a financial firm on the verge of failure to be rescued by internally restructuring its debt. This method is known as bail-in.
Bail-in differs from a bail-out which involves funds being infused by external sources to resolve a firm. This includes a failing firm being rescued by the government.
How does it work?
Under bail-in, the Resolution Corporation can internally restructure the firm’s debt by: (i) cancelling liabilities that the firm owes to its creditors, or (ii) converting its liabilities into any other instrument (e.g., converting debt into equity), among others.[3]
Bail-in may be used in cases where it is necessary to continue the services of the firm, but the option of selling it is not feasible.[4] This method allows for losses to be absorbed and consequently enables the firm to carry on business for a reasonable time period while maintaining market confidence.3 The Bill allows the Resolution Corporation to either resolve a firm by only using bail-in, or use bail-in as part of a larger resolution scheme in combination with other resolution methods like a merger or acquisition.
Do the current laws in India allow for bail-in? What happens to bank deposits in case of failure?
Current laws governing resolution of financial firms do not contain provisions for a bail in. If a bank fails, it may either be merged with another bank or liquidated.
In case of bank deposits, amounts up to one lakh rupees are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). In the absence of the bank having sufficient resources to repay deposits above this amount, depositors will lose their money. The DICGC Act, 1961 originally insured deposits up to Rs 1,500 and permitted the DICGC to increase this amount with the approval of the central government. The current insured amount of one lakh rupees was fixed in May 1993.[5] The Bill has a similar provision which allows the Resolution Corporation to set the insured amount in consultation with the RBI.
Does the Bill specify safeguards for creditors, including depositors?
The Bill specifies that the power of the Corporation while using bail-in to resolve a firm will be limited. There are certain safeguards which seek to protect creditors and ensure continuity of critical functions of the firm. 
When resolving a firm through bail-in, the Corporation will have to ensure that none of the creditors (including bank depositors) receive less than what they would have been entitled to receive if the firm was to be liquidated.[6],[7]
Further, the Bill allows a liability to be cancelled or converted under bail-in only if the creditor has given his consent to do so in the contract governing such debt. The terms and conditions of bank deposits will determine whether the bail-in clause can be applied to them.
Do other countries contain similar provisions?
After the global financial crisis in 2008, several countries such as the US and those across Europe developed specialised resolution capabilities. This was aimed at preventing another crisis and sought to strengthen mechanisms for monitoring and resolving sick financial firms.
The Financial Stability Board, an international body comprising G20 countries (including India), recommended that countries should allow resolution of firms by bail-in under their jurisdiction. The European Union also issued a directive proposing a structure for member countries to follow while framing their respective resolution laws. This directive suggested that countries should include bail-in among their resolution tools. Countries such as UK and Germany have provided for bail-in under their laws. However, this method has rarely been used.7,[8] One of the rare instances was in 2013, when bail-in was used to resolve a bank in Cyprus.
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[1] ‘Modi government’s FRDI bill may take away all your hard-earned money’, India Today, December 5, 2017, http://indiatoday.intoday.in/story/frdi-bill-banking-reforms-modi-government-india-parliament/1/1103422.html.
[2] ‘Bail-in doubts — on financial resolution legislation’, The Hindu, December 5, 2017, http://www.thehindu.com/opinion/editorial/bail-in-doubts/article21261606.ece.
[3] Section 52, The Financial Resolution and Deposit Insurance Bill, 2017.
[4] Report of the Committee to Draft Code on Resolution of Financial Firms, September 2016, http://www.prsindia.org/uploads/media/Financial%20Resolution%20Bill,%202017/FRDI%20Bill%20Drafting%20Committee%20Report.pdf.
[5] The Deposit Insurance and Credit Guarantee Corporation Act, 1961, https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/dicgc_act.pdf. s
[6] Section 55, The Financial Resolution and Deposit Insurance Bill, 2017.
[7] The Bank of England’s approach to resolution, October 2014, Bank of England.
[8] Recovery and resolution, BaFin, Federal Financial Supervisory Authority of Germany, https://www.bafin.de/EN/Aufsicht/BankenFinanzdienstleister/Massnahmen/SanierungAbwicklung/sanierung_abwicklung_artikel_en.html.
The Protection of Children against Sexual Offences Act, 2012 was passed by both Houses of Parliament on May 22. The legislation defines various types of sexual offences against children and provides penalties for such acts. According to a report commissioned by the Ministry of Women and Child Development in 2007, about 53% of the children interviewed reported some form of sexual abuse. The law has been viewed as a welcome step by most activists since it is gender neutral (both male and female children are covered), it clearly defines the offences and includes some child friendly procedures for reporting, recording of evidence, investigation and trial of offences. However, the issue of age of consent has generated some controversy. Age of consent refers to the age at which a person is considered to be capable of legally giving informed consent to sexual acts with another person. Before this law was passed, the age of consent was considered to be 16 years (except if the woman was married to the accused, in which case it may be lower). Section 375 of the Indian Penal Code, 1860 states that any sexual intercourse with a woman who is below the age of 16 years is considered to be “rape”. The consent of the person is irrelevant. This post provides a snapshot of the key provisions of the Act, the debate surrounding the controversial provision and a comparison of the related law in other countries. Key provisions of the Act
Debate over the age of consent After introduction, the Bill was referred to the Standing Committee on Human Resource Development. The Committee submitted its report on December 21, 2011 (see here and here for PRS Bill Summary and Standing Committee Summary, respectively). Taking into account the recommendations of the Standing Committee, the Parliament decided to amend certain provisions of the Bill before passing it. The Bill stated that if a person is accused of “sexual assault” or “penetrative sexual assault” of a child between 16 and 18 years of age, it would be considered whether the consent of the child was taken by the accused. This provision was deleted from the Bill that was passed. The Bill (as passed) states that any person below the age of 18 years shall be considered a child. It prohibits a person from engaging in any type of sexual activity with a child. However, the implication of this law is not clear in cases where both parties are below 18 years (see here and here for debate on the Bill in Rajya Sabha and Lok Sabha). The increase in the age of consent to 18 years sparked a debate among experts and activists. Proponents of increasing the age of consent argued that if a victim is between 16 and 18 years of age, the focus of a sexual assault case would be on proving whether he or she consented to the act or not. The entire trial process including cross-examination of the victim would focus on the conduct of the victim rather than that of the accused (see here and here). Opponents of increasing the age of consent pointed out that since this Act criminalises any sexual activity with persons under the age of 18 years (even if consensual), the police may misuse it to harass young couples or parents may use this law to control older children’s sexual behaviour (see here and here). International comparison In most countries, the age of consent varies between 13 and 18 years. The table below lists the age of consent and the corresponding law in some selected countries.
| Countries |
Age of consent |
Law |
| US | Varies from state to state between 16 and 18 years. In some states, the difference in age between the two parties is taken into account. This can vary between 2-4 years. | Different state laws |
| UK | 16 years | Sexual Offences Act, 2003 |
| Germany | 14 years (16 years if the accused is a person responsible for the child’s upbringing, education or care). | German Criminal Code |
| France | 15 years | French Criminal Code |
| Sweden | 15 years (18 years if the child is the accused person’s offspring or he is responsible for upbringing of the child). | Swedish Penal Code |
| Malaysia | 16 years for both males and females. | Malaysian Penal Code; Child Act 2001 |
| China | No information about consent. Sex with a girl below 14 years is considered rape. Sodomy of a child (male or female) below 14 years is an offence. | Criminal Law of China, 1997 |
| Canada | 16 years | Criminal Code of Canada |
| Brazil | 14 years | Brazilian Penal Code 2009 |
| Australia | Varies between 16 and 17 years among different states and territorial jurisdictions. In two states, a person may engage in sexual activity with a minor if he is two years older than the child. In such cases the child has to be at least 10 years old. | Australian Criminal laws |
| India | 18 years. | Protection of Children Against Sexual Offences Act, 2012 |
