Moody's: Draft bill on resolution of financial firms is credit positive for banks

Moody's Investors Service on Tuesday said that the draft bill on the resolution of financial firms in India (Baa3 positive) is a credit positive for banks. 

Srikanth Vadlamani, Moody's Vice President and Senior Credit Officer said,"Currently, the resolution of financial firms in India is based on minor parts of legislation enacted for other purposes. As a result the bill is a credit positive for Indian banks in terms of enhancing overall systemic stability".

Moody's expects that the Indian banking system will remain functioning without an operational resolution rule, and banks should continue to be rated under a basic loss given failure framework.

"Public sector banks will be brought under the ambit of the resolution framework. By contrast, according to existing laws, public sector bank resolution can only happen under the direction of the government," the report said.