MUMBAI, Jan 11 (Reuters): Amendments to India's bankruptcy law should focus on a financial creditor-led framework for resolution of stressed assets, the governor of the country's central bank said on Thursday.
"It has to be recognised that the financial creditors take the maximum risk and hence their risk needs to be commensurately compensated and with priority," Shaktikanta Das, governor of the Reserve Bank of India (RBI) said at an event in Mumbai.
"Accordingly, any amendments to the (Insolvency and Bankruptcy) Code and its evolution thereof may continue to lay emphasis on a financial creditor-led resolution framework, in an overarching manner."
Given certain shortcomings on the part of the so-called committee of creditors, there appears to be a trend in recent years towards balancing the rights of operational creditors with those of financial creditors under the insolvency code, the governor said.
Financial creditors, like banks and other financial institutions, are those that have a financial contract with the debtor, like in case of a loan or a bond issuance.
On the other hand, the insolvent firm owes money to operational creditors because of a good or service that it has availed.
Meanwhile, India is planning to lower its budget deficit by at least 50 basis points in 2024/25 from this year's target of 5.9 per cent of gross domestic product (GDP), while also looking to raise capital spending by as much as 20 per cent, two government officials said.
Shrinking the fiscal deficit and yet at the same time increasing capital spending will depend on an increase in revenues and efforts to curb subsidies, said Devendra Pant, an economist at India Ratings.
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