Resolving stressed financial firms

A resolution corporation is required for the failure of banks, insurance companies, and systemically important firms

Ajay Shah

The resolution of stressed financial firms is a key bottleneck in economic policy today. Such resolution is no different from that of non-financial firms when the firm in question has not made intense promises to unsophisticated households. For financial firms such as non-banking financial companies (NBFCs), the plain Insolvency and Bankruptcy Code (IBC) is the right way to do resolution. A specialised statutory financial resolution corporation is for the limited class of problems, where the plain IBC approach will work poorly. From 2011 onwards, a major problem in India has been ...