Indian banks decentivised by insolvency code

Author: Brian Yap | Published: 28 Jun 2017

In an unprecedented move, the Modi government has granted the Reserve Bank of India (RBI) power to force banks to file insolvency proceedings against defaulters under the country’s new bankruptcy regime, but no provisioning benefits apply.

The Indian banking economy has been struggling with NPLs for the last few years and lenders have not been active in taking enforcement action against many Indian borrowers. With the new power, it is expected that the RBI can require the banks, who so far were disinclined to take action, to start insolvency resolution proceedings under the country’s Insolvency and Bankruptcy Code. 

Public lenders have been wary of taking action as they have come under the increased scrutiny of various vigilance agencies, which are averse to investigative action commencing due to any inaction or late action.

But counsel in India point to the absence of provisioning benefits in proceedings filed under...