Certain distinguishing features of FSPs had justified their exclusion from the IBC. First, FSPs deal with public money and any faltering on their part may impact the economy as a whole. Second, FSPs operate with high levels of inter-connectedness. Hence, the failure of a FSP may also negatively affect other FSPs in business with it. Third, standard resolution arrangements may not be suitable for FSPs due to their time-consuming nature and disregard for broader systemic stability considerations. However, this created a legal vacuum regarding the resolution of FSPs in India.
To fill this regulatory gap, the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill) was introduced in the Parliament, to create a dedicated resolution…