joint lenders ’ forum, which had a similar role to play as the committee of creditors under the ibc. the asset classification standstill was comparable to the moratorium pronounced under ibc. the requirement of the majority decision being binding on the dissenting creditors was a regulatory equivalent of the statutory cramdown under ibc. however, the statutory powers available to rbi for resolution of stressed assets in the financial system are limited to the entities regulated by rbi whereas unravelling of the complex web of financial contracts and rewriting them in consonance with the income generating capabilities of an insolvent debtor required a comprehensive statutory framework with sweeping powers over various types of creditors. though well - intentioned, the schemes designed by rbi sometimes became a channel for lenders to delay recognition of financial stress in the borrowers by postponing the actual asset classification. paradigm shift under ibc the enactment of ibc in 2016 resulted in a paradigm shift in the efforts towards resolution of stressed assets in the financial system. the code marked a radical departure from the prevalent approaches in that it embraced the “ creditor - incontrol ” model as against the “ debtor - in - possession ” model that had failed to produce any tangible improvements in the credit discipline in the country. thus, the code fundamentally reset the power balance between debtors and creditors in the face of a default by the debtors. this approach is economically sound since creditors only have the contractually agreed share of the economic surplus created by a borrower with the rest of the surplus going to equity holders without any limits till a default occurs. at that point the equity holders are protected by limited liability while the creditors stand to lose up to the entirety of their exposure to the insolvent debtor. in a single stroke, the code removed “ the divine right of promoters to continue in saddle ”, as had been observed by the hon ’ ble supreme court, restoring the interests of other stakeholders, especially the creditors. the insertion of section 29a provided further fillip to the notion that an insolvent debtor has to be protected from its own management, if required, for the maximisation of value from the debtor to the society as a whole. thus, for the first time, the promoters faced with the possibility of losing control of their respective companies if financial stress is not addressed in a timely and comprehensive manner. the code also established committee of creditors as a public institution with the paramount responsibility of ensuring maximisation of value

with systemically important banks and financial institutions in the international context. this involves a host of tasks : development of indicators of systemic risk, identification of systemically important financial institutions ( sifis ), differential systems for sifis by way of capital and liquidity surcharge and enhanced supervision, improving the capacity to resolve sifis without recourse to taxpayer money, reducing the probability and impact of a sifi failure, strengthening the core financial market infrastructure to reduce contagion risks if failure occurs and improving the oversight of sifis. 26. even if we accept that sifis should be subject to some additional regulation on top of the base level regulations, there are several issues that need to be addressed in fleshing out the necessary framework. the first issue is of evolving objective criteria for identifying systemically important institutions. second, how do we apply the criteria since the systemic importance of an institution is likely to be time - varying and state - dependent as per the economic environment? finally, drawing a sharp distinction between a sifi and a non - sifi requires considerable judgement and has a moral hazard downside. containment of systemic risk : indian perspective 27. the framework for identification of sifis that will evolve is expected to be applicable uniformly to all countries. india will also need to adopt that. the identification under the bcbs framework will happen from an international perspective, and we need to do a supplementary exercise to identify sifis in the domestic context even if they are not in the international list. in either case, if the proposal for levying systemic risk capital and liquidity charge is eventually agreed upon, a few indian banks may be called upon to maintain additional capital and liquidity charges. 28. then there is the issue of resolution of sifis in the event of failure. we also need to promote structures which make such resolutions smooth and orderly. the recent reserve bank initiative to constitute a working group to examine the suitability of financial holding companies in india is a step in this direction. rbi has also been constantly upgrading the regulatory and supervisory framework for financial conglomerates. efforts are also under way to bring a larger number of financial transactions within the ambit of multilateral settlement through central counterparties. vi. regulation of compensation practices of banks : bcbs proposals 29. it is now widely acknowledged that the flawed incentive framework underlying the compensation structures in the advanced country banking sectors fuelled the crisis. the performance - based compensation of bank executives is typically justified on the