In order to ensure the overall stability in the system, RBI working group has recommended setting up a Financial Resolution Authority (FRA) to effectively deal with failing financial institutions. The need for a policy framework to deal with the failure of such entities in a manner that it avoids disruption of critical financial services was underlined by report on 'Resolution Regime for Financial Institutions'.
As per the recommendations of working group, constituted by RBI under the chairmanship of then RBI Deputy Governor Anand Sinha, with Economic Affairs Secretary Arvind Mayaram as co-chairperson, FRA can be set up by either converting the Deposit Insurance and Credit Guarantee Corporation (DICGC) or creating a new entity that will subsume the DICGC.
FRA would be required to resolve failed financial institutions and FMIs, other than those owned and operated by RBI, and provide deposit insurance and protection to insurance policy holders and investors/clients within limits, if required at the resolution stage. These recommendations were with the view to detect problems at an early stage and have suitable redressal and revival mechanisms.
Further, the group recommended that FRA should have a variety of resolution tools mandated by the proposed statute to carry out orderly resolution of failing financial institutions and FMIs without taxpayers' support. Additionally, it also stated that the government may on recommendation by the Financial Stability Development Council, be empowered to place a financial institution under temporary public ownership.