Moody’s Investor Services on Monday said that the amendments to the Insolvency and Bankruptcy Code (IBC), which enables resolution of finance companies, are credit positive for banks as it provides for an orderly resolution of a stressed company.
Earlier, the only resolution framework for non-banking financial institutions (NBFIs) was through liquidation.
Following the amendment on November 18, the resolution of NBFIs, including housing finance companies, with asset sizes greater than Rs 500 crore may be taken up via the IBC. The resolution process can only be initiated by the regulator, RBI. The credit rating agency said that it expected the RBI to selectively approach the IBC to resolve NBFIs with severe liquidity or solvency issues or those with weak corporate governance detrimental to potential buyers. “We also expect banks and the RBI to utilise other debt restructuring options before approaching the IBC,” the report said.
The agency further said that the close involvement of the RBI in the resolution process indicates the importance of the NBFI sector to overall financial stability. The RBI recently superseded the board of beleaguered DHFL, and has appointed an administrator and an advisory committee to oversee the resolution process.
Source: Financial Express, November 26, 2019