Govt to bring NBFCs under insolvency code

Within the ambit of the Insolvency and Bankruptcy Code, the government is set to bring non-banking finance companies, but in a slightly tweaked form, for smoother resolution of these entities and firewall the rest of the financial system from any possible adverse impact.
The move comes in the pretext when several NBFCs are under stress and is based on the government’s experience with IL&FS, where it had to step in and appoint a new board after superseding its directors.

Resolution has been slow for a year and the government has been forced to step in to ensure smooth resolution of assets to ensure that banks and finance companies that have an exposure to IL&FS group are not impacted by the crisis.

But unlike other companies, where a resolution professional is appointed by the National Company Law Tribunal, the ministry of corporate affairs and the department of economic affairs in the finance ministry are working out an arrangement that draws from the Financial Resolution and Deposit Insurance Bill, which was withdrawn.