The Imperative for a distinct framework for the resolution of financial firms
The financial sector is facing a combination of liquidity, governance and business issues, on account of which certain Non Banking Financial Companies (“NBFCs”) are facing solvency concerns.
The severe liquidity crunch for NBFCs was caused as banks and other financial institutions have curtailed refinancing the loans of NBFCs on account of which several NBFCs and other financial institutions faced debt servicing and solvency issues. These have sought to be resolved through the Stressed Asset Directions issued by the Reserve Bank of India (“RBI”) on June 7, 2019. This was fraught with complexities given the diverse sets creditor, including market borrowings each of whom were governed by different financial regulators.