Concerned about stress in financial sector, govt to bring NBFCs under insolvency code
New Delhi: The government is set to bring non-banking finance companies within the ambit of the Insolvency and Bankruptcy Code, but in a slightly tweaked form, to firewall the rest of the financial system from any possible adverse impact.
The move comes at a time when many 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 the directors. A year later, resolution has been slow and the government has been forced to step in to ensure smooth resolution of assets to ensure that banks and finance companies with an exposure to IL&FS group are not hit.
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ministry are working out an arrangement that draws from the Financial Resolution and Deposit Insurance Bill, which was withdrawn. The bill had provided for setting up a Resolution Corporation that would take over the management of the finance company once it was classified as “critical”.