In 2019, the banking and finance sector witnessed major developments with the Supreme Court striking down RBI's circular on resolution of stressed assets and the RBI subsquently introducing a revised framework. The year also saw judicial and legislative developments in the insolvency and bankruptcy space and an overhaul of the External Commercial Borrowings framework. This update summarises some of these developments along with our expectations for the year 2020.
THE YEAR THAT WAS
In 2019, the Indian economy witnessed a decline in its growth rate with a slump in demand in various sectors such as real estate, aviation, construction and automobiles. Consequently, the Ministry of Finance was tasked to take measures to alleviate the growing concerns of the state of the Indian economy and the banking sector.
To improve the landscape of the Indian banking sector, the Finance Ministry announced the amalgamation of ten public sector banks into four major banks, subsequently reducing the total number of Indian public sector banks from 27 to 12. Once the merger takes effect, the enhanced capital base is expected to enable public sector banks to offer larger loans.
Following the recommendations made by the Bimal-Jalan expert committee, the Reserve Bank of India (RBI) decided to provide surplus funds to the Indian government which is expected to revive economic growth in a time of scarce consumer demand and scant investment.
Additionally, this year saw a significant overhaul in the process of stressed asset management. The RBI introduced a new framework for resolution of stressed assets – aimed at bringing about a change in the approach of banks to monitor exposures and resolution of non-performing assets. Simultaneously, the year saw major developments under the Insolvency and Bankruptcy Code, 2016 (IBC) through legislative amendments and important court decisions such as in the Essar Steel insolvency case which provided a much-needed closure to legal quagmires.
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