India's Draft bill on Resolution of Financial firms is Credit Positive for Banks
Moody's Investors Service, a global rating agency, has said that the draft bill on the resolution of financial firms in India is a credit positive for banks in the country, because it is an important step to having a comprehensive framework in place for the resolution of financial firms. "Currently, the resolution of financial firms in India is based on minor parts of legislation enacted for other purposes," says Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.
"This bill is therefore a credit positive for Indian banks in terms of enhancing overall systemic stability." "At the same time, we note that the draft bill will have to go through multiple steps before becoming law, and could therefore be subject to changes and delays," adds Vadlamani. Moody's conclusions are contained in its just-released report titled "Banks — India: Draft Bill on Resolution Will Enhance Systemic Stability," and is authored by Vadlamani.
Moody's report says that based on the draft bill, bail-ins do not seem to be the preferred form of resolution, with significant restrictions in place for their usage. These restrictions include contractual bail-in clauses for instruments that may be bailed in and requirements that bail-ins should be used only after attempts at recovery have been made.
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