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  3. Proposed IBC amendments credit positive for banks: Moody’s

Proposed IBC amendments credit positive for banks: Moody’s

26 Jul 2019 Evaluate

Global rating agency Moody’s Investors Service in its latest report has said that the government’s proposed seven amendments to the Insolvency and Bankruptcy Code (IBC) will improve its effectiveness and three of the seven proposals are credit positive in general and particularly for Indian banks as they restore the primacy of secured creditors.  Recently, the government had cleared seven amendments to the IBC that will enforce a strict 330-day timeline for corporate resolution process, including litigation and other judicial processes, as well as make resolution plan binding on all stakeholders.  

The rating agency has stated that cases in the IBC have taken much longer to resolve than the originally envisaged 270 days, in large part because concerned parties have repeatedly appealed to higher courts. However, it said the poor track record of resolving cases on time means that actual implementation will be required before the process can be said to have been definitively speeded up. It noted that the amendments also give the committee of creditors explicit authority over the distribution of proceeds in the resolution process, thereby maintaining the accepted hierarchy of creditors.

Under the IBC, the report said homebuyers in a real estate project are treated on a par with secured creditors, which means that their approval is required before the committee can approve the resolution plan. It noted that because homebuyers in a large project are likely to be relatively numerous, obtaining the approval of all the affected homebuyers has proved a logistical challenge. With the proposed change, it said only the approval of a majority of those present will be required for the resolution to be approved. 

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