New IBC rules to cover financial service providers
The government has put out detailed rules for the resolution of systemically important financial service providers under the bankruptcy law, opening the doors for resolution of stressed non-banking finance companies under this framework. Financial service providers are ordinarily not covered under the Insolvency and Bankruptcy Code. Under the rules notified, the code can be invoked to find a resolution for stressed finance companies such as Dewan Housing Finance Corporation Ltd. (DHFL). These rules will not apply to banks. Separately, the government will notify specific categories of financial service providers that do not fall under the systemically important category to be resolved as ordinarily applicable to corporate debtors. “The government will notify specific categories of FSPs that do not fall under the systemically important category and shall be resolved under the normal provisions of the Code as ordinarily applicable to corporate debtors,” it said in a release, adding that the special framework will not apply to banks. This will be decided in consultation with the appropriate regulators, which, in most cases, would be the Reserve Bank of India.
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