‘Moody's has said that the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Bill, 2016, and the Insolvency and Bankruptcy Code, 2016 (bankruptcy), will lead to structural improvements in banks, which are dealing with bad assets.
While the bankruptcy law has been ratified, the Enforcement of Security Interest and Recovery of Debts Bankruptcy Code, 2016, has to be passed by the Rajya Sabha after it was cleared by the Lok Sabha.
The Enforcement of Security Interest and Recovery of Debts Bankruptcy Code, 2016, is a credit positive for banks in India as it aims to expedite the recovery and resolution of bad debts, said a statement issued by Moody's Investors Services.
"Weakness in current processes for bad debt resolution has been a key structural credit challenge for Indian banks. There are currently about 70,000 cases pending in debts recovery tribunals (DRTs), and these cases have been pending for many years owing to various adjournments and prolonged hearings," Moody's said.
According to Moody's, the provisions relating to promotion of asset reconstruction companies for banks to off-load their non-performing assets (NPA) and prioritise debt due to secured creditors over all other debts and claims (including government claims) are credit positive features for the Indian banks.