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 firms
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, http://www.prsindia.org/uploads/media/Financial%20Resolution%20Bill,%202017/Financial%20Resolution%20Bill,%202017.pdf
[2]. 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
[3]. The Deposit Insurance and Credit Guarantee Corporation Act, 1961, http://www.prsindia.org/uploads/media/Financial%20Resolution%20Bill,%202017/DICGC%20Act,%
The RO decides the place where the votes will be counted for the parliamentary constituency. The date and time of counting is fixed by the ECI. Ideally counting of votes for a constituency should be done at one place, preferably at the Headquarter of the RO in that constituency. It should be performed under the direct supervision of the RO. However, each Parliamentary Constituency has multiple assembly segments. In this situation, counting can take place at different locations for various assembly segments under the direct supervision of an Assistant Returning Officer (ARO).
Layout of the Counting Hall
Page 431, Handbook for Returning Officer Document 23 Edition 1, Election Commission of India
Counting of votes for each assembly segment of a parliamentary constituency is performed in a single hall. In each round of counting, votes from 14 EVMs are counted. In case of simultaneous parliamentary and assembly elections, such as Odisha, the first seven tables are used for counting votes for assembly elections, and the rest for parliamentary elections.
In constituencies with a large number of candidates, it may not be possible to count votes for all candidates in a single hall without overcrowding it. In such a situation, the number of counting halls or tables can be increased with the prior permission of the ECI. A hall can also be used for counting votes of another assembly segment after the results of the first segment are declared. However, counting may be done for only one assembly segment in a hall at any point of time.
What is the counting process?
Counting is performed by counting supervisors appointed by the RO. Counting staff is appointed through a three stage randomisation process to ensure impartiality. Candidates along with their counting agents and election agents are also present in the counting hall.
Counting of votes begins with Electronically Transmitted Postal Ballots (ETPB) and Postal Ballots (PB). These votes are counted under the direct supervision of the RO. Counting of EVMs can start 30 minutes after the commencement of PB counting, even if all PBs have not been counted. At the end of each round of counting, the results from 14 EVMs are declared.
What is the process for counting VVPAT slips?
The ECI prescribes the process for randomly selecting one EVM for each assembly segment of a parliamentary constituency for VVPAT matching. The verification of VVPAT paper slips is conducted inside a secured VVPAT Counting Booth in the counting hall with access to authorised personnel only. Any counting table in the hall can be converted into VVPAT Counting Booth after completing EVM vote counting. Parliamentary constituencies generally have between five and ten assembly segments.
The Supreme Court has decided that VVPAT slips of five randomly selected polling stations for each assembly segment shall be matched with the result shown in the respective EVMs. This implies that VVPAT paper slips need to be matched for about 25-50 machines for each parliamentary constituency. This process requires personal supervision of RO/ARO. The ECI has decided that the counting of five VVPATs will be done sequentially.[5] The RO can declare the final result for the constituency after the VVPAT matching process has been completed.
What happens if there is a discrepancy between the VVPAT count and the EVM results?
In such a case, the printed paper slips count is taken as final. The ECI has not clarified whether there would be any further action (such as counting of all VVPATs in a constituency or assembly segment) if there is a discrepancy in the counts of one of the five VVPATs.
[1] https://www.eci.gov.in/files/file/8756-status-paper-on-evm-edition-3/.
[2] N Chandrababu Naidu and Ors. v. Union of India and Anr WP(C). 273/2019 decided on April 8, 2019.
[3] https://www.eci.gov.in/files/file/9400-hand-book-for-returning-officer-february-2019/.
[4] https://www.eci.gov.in/faqs/elections/election-machinery/faqs-election-machinery-r1/.
[5] https://www.eci.gov.in/files/file/10197-mandatory-verification-of-vvpat-paper-slips-regarding/.
The nominations for all phases of the General Election have been submitted. We examine highlights from data on candidates who are participating in the ongoing elections. There are 8,039 candidates contesting for 542 Parliamentary constituency seats.
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On average, 14.8 candidates are contesting per constituency across the country. Among all the states, Telangana has the highest average number of candidates contesting. This is primarily due to 185 contestants from Nizamabad. Excluding Nizamabad, the state’s average number of contestants would be 16.1. |
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The Election Commission of India recognises parties as either national or state parties based on their performance in previous elections. Delhi and Haryana have a high number of candidates contesting from parties that have not been recognised as either national or state parties. After Telangana, Tamil Nadu has the highest average of independent candidates contesting in this election. On average, of the candidates in each constituency in Tamil Nadu, two-thirds are contesting as independent candidates. |
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After Nizamabad, the second highest number of candidate representation is seen in Belgaum, Karnataka. The five constituencies that have the highest candidate representation are from the southern states of Telangana, Karnataka, and Tamil Nadu. |
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The Bharatiya Janata Party and Congress are contesting 435 and 420 seats respectively. In 373 seats they are in competition with each other. BSP has the third highest number of candidates contesting in this election. |
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The seven national parties together fielded 2.69 candidates per constituency. Among the largest five states, West Bengal has the highest representation of candidates from national parties, at 4.6. In that state, candidates from five national parties are contesting. Recognised state parties, together, fielded 1.53 candidates per constituency. Bihar (6 state parties) and Tamil Nadu (8 state parties) see a high representation of candidates from state parties, at 1.2 and 1.3 respectively. Largest states are ones with more than 30 Parliamentary constituency seats: Uttar Pradesh (80), Maharashtra (48), West Bengal (42), Bihar (40), and Tamil Nadu (39). These states together have 249 seats i.e., 46% of Lok Sabha. |
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For these five states, the number of seats being contested by national and state parties is shown in the figures below. |
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This analysis is based on the candidate list available on the Election Commission website (eci.gov.in) on May 8, 2019.