RBI Governor Calls for Resolution Corp to Revive Banks

Reserve Bank of India governor Shaktikanta Das called for the setting up of a resolution corporation to revive failed financial firms. Speaking at the State Bank of India economic conclave, Das said this proposal was part of the Financial Resolution and Deposit Insurance Bill 2017, which was later withdrawn. The idea behind this resolution corporation is to ensure that a bank is resolved rather than liquidated, as depositors are expected to get a much higher value in resolution of the bank as a going concern than in liquidation. In the case of non-banking finance companies and housing finance companies, RBI is empowered by the Insolvency and Bankruptcy Code (IBC) to take over the administration of privately held financial services firms. Under those powers, RBI has now appointed an administrator for Dewan Housing Finance Corp Ltd (DHFL) and it has been referred to the NCLT. Das also highlighted that RBI’s role even after the setting up of a legally backed resolution corporation will to be issue early warning signals and flag emerging risks. He said the economic impact of the pandemic could result in higher non-performing assets and capital erosion of banks. He stressed the need for banks and NBFCs to raise capital.