IBC for NBFCs a credit positive for Indian banks: Moody’s

Enables orderly resolution: Moody’s

The government’s recent move to amend the Insolvency and Bankruptcy Code to enable resolution of non-banking finance companies (NBFCs) is a credit positive for Indian banks, rating agency Moody’s said on Monday.

“Inclusion of the NBFIs [non-banking finance institutions] in the country’s bankruptcy code is credit positive for India’s banks that are NBFIs’ largest lenders because the IBC rule provides for the orderly resolution of a stressed company. Until now, the only resolution framework for NBFIs was through liquidation,” Moody’s said.

Following the amendment, RBI said bankruptcy proceedings would be initiated for Dewan Housing Finance Corporation Ltd. Moody’s noted that since July 2019, banks and other creditors to Dewan had been unsuccessful in trying to restructure its liabilities.

“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,” it added.

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