Moody’s Investor Service said that the recent amendments to the Insolvency and Bankruptcy Code to may way for the resolution of financial services providers is credit positive for banks.
“Inclusion of the Non-Bank Finance Institutions (NBFIs) in the country’s bankruptcy code is credit positive for India’s banks that are NBFIs’ largest lenders because the Insolvency and Bankruptcy Code (IBC) rule provides for the orderly resolution of a stressed company,” Moody’s said.
On November 18, the centre amended the bankruptcy regulation to ensure the resolution of non-bank finance companies with asset sizes higher than Rs 500 crore via the bankruptcy regulation. Until now, the only resolution framework for financial institutions was permitted through liquidation.
Moody’s has a view that an orderly resolution process through the IBC will help in controlling the losses for creditors as compared with liquidation.
Under the amended law, the resolution process can be initiated only by the regulator, the Reserve Bank of India (RBI).
“We expect the RBI to selectively approach the IBC to resolve NBFIs with severe liquidity or solvency issues, or to resolve companies whose weak corporate governance is deterring potential buyers. We also expect banks and the RBI to utilize other debt restructuring options before approaching the IBC,” it added.