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Bank resolution framework changes credit positive: Moody's
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SME Times News Bureau | 02 Jul, 2020
Amendments to India's bank resolution framework are credit positive, according to Moody's Investors Service.
The
amended resolution process was credit positive as it helped preserve
depositor confidence and avoid deposit flight from a weak bank as the
risk of moratorium was reduced, it said in a credit outlook article.
"The
amendments are also credit positive for bank's depositors and creditors
because their ability to obtain full and timely repayments during the
resolution process are unaffected," it said.
On June 26, the
central government amended the Banking Regulation Act, 1949, allowing
the Reserve Bank of India to initiate the resolution of a weak bank by
re-constructing its capital or merging it with another bank without the
prior requirement of imposing a moratorium on its depositors and
creditors.
Before the amendments, the RBI could only initiate
the resolution process of a weak bank after seeking approval from the
central government to impose moratorium on the bank's assets and
liabilities for up to six months.
On March 5, the RBI imposed a
30-day moratorium on Yes Bank because of its weakening solvency and
liquidity. "The moratorium on Yes Bank was lifted after 13 days, after
the the government approved a reconstruction plan in which a number of
public and private sector banks infused new equity capital into the
bank," it said.
"Although the bank's depositors and senior debt
holders were rescued by the authorities, the bank experienced a
significant outflow of deposits in the run-up to the moratorium and
after it was lifted," Moody's said.
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Customs Exchange Rates |
Currency |
Import |
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US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
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75.65 |
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56.85 |
As on 13 Aug, 2022 |
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