India's bankruptcy resolution process has just begun to find its feet with recent precedent-setting court rulings, but bankers, lawyers and insolvency experts say the system is about to face a huge test. The non-bank financing giant Dewan Housing Finance Corp Ltd (DHFL) will go into insolvency proceedings, the central bank said on wednesday, making it the first financial institution to test the new laws.
So-called shadow banks such as DHFL have been key drivers of lending growth in india, with their consolidated balance sheet worth a whopping 28.8 trillion rupees ($400 billion) in 2018-19, based on central bank data.
"No one knows how it will work out," said manish Lalwani, an independent insolvency professional. "It is not clear if the existing law is equipped to deal with such cases." The government just days ago tweaked its insolvency regulations to allow for financial firms including non-banking finance companies to be forced into insolvency.
