The government is in the process of drafting a new insolvency law for banks and financial institutions to vest with depositors the first right over assets of a defunct entity and will soon bring the law into reality. Minister for State for Finance Jayant Sinha has said that the new law will deal with quick winding up of stressed banks, NBFCs, and other financial institutions while safeguarding the interest of small savers.
Sinha further said that there was need for appropriate resolution processes for orderly winding down of financial firms, as the financial firms by their characteristics have depositors of money as well. The new law which is more in terms of the structural reforms, once come in reality will help the financial firms. He added that the government is looking at additional legislation for resolution of bankruptcy in financial firms.
He added that the inability to shut loss-making firms and collect dues had locked up funds at banks and damped lending and investment and hence the government is setting up infrastructure to operationalise the law. Recently, Parliament passed the Insolvency and Bankruptcy Code that combines more than four overlapping sets of laws which aims to reduce time taken to wind up a dying company or recover dues from a defaulter.