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The Lok Sabha on Sunday night passed the Bilateral Netting of Qualified Financial Contracts Bill 2020 that seeks to further develop the financial market in India and provide an unambiguous legal framework for enforceability of netting of a qualified financial contract.
This Bill is significant as India currently does not have a legal framework for bilateral netting.
Netting enables two counterparties in a bilateral financial contract to offset claims against each other to determine a single net payment obligation due from one counterparty to others in the event of default.
Replying to the discussions on the Bill, Minister of State for Finance and Corporate Affairs, Anurag Singh Thakur said that this Bill would help Banks and financial institutions save capital, which is very useful in today's times.
It is not only in India that such a legal framework is being introduced, as many as 50 countries in the world already have a similar legal framework.
Thakur said that India has factored in the International Swap and Derivative Association(ISDA) model Act on netting while framing the Bill.
The proposed law on bilateral netting will be a significant enabler for efficient margining, and the capital saving would enable banks to provide efficiency in offering hedging instruments to businesses in India. It would also help catalyse the corporate bond market by developing the credit default swap market.
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