Credit Creation Process — Policy Reforms

Entry	Year	Description	Impact
Banking Regulation (Amendment) Act, 2020	2020	This amendment brought cooperative banks under the direct supervision of the Reserve Bank of India (RBI), extending its regulatory powers over these entities. It aimed to improve governance and financial stability in the cooperative banking sector.	By bringing cooperative banks under tighter RBI control, the amendment enhances the central bank's ability to regulate credit creation across a broader spectrum of the banking system. It ensures that these banks also adhere to prudential norms, impacting their lending capacity and overall credit discipline, thereby contributing to systemic stability.
Insolvency and Bankruptcy Code (Amendment) Act, 2021	2021	Introduced the Pre-packaged Insolvency Resolution Process (PIRP) for Micro, Small and Medium Enterprises (MSMEs), offering a faster and less complex resolution mechanism for stressed MSMEs.	While not a direct banking act amendment, the IBC amendments significantly impact credit creation by improving the ease of recovery for banks. A more efficient insolvency framework reduces the risk perception associated with lending, particularly to MSMEs. This can encourage banks to lend more freely, thereby boosting credit creation to a vital sector of the economy by improving the credit risk environment.
Financial Resolution and Deposit Insurance Bill (FRDI Bill) (Proposed, later withdrawn)	2017 (Proposed)	The FRDI Bill aimed to provide a comprehensive resolution framework for financial firms, including banks, to deal with insolvency. It proposed establishing a Resolution Corporation to manage financial distress.	Though withdrawn, the discussions around the FRDI Bill highlighted the need for a robust framework to manage bank failures. Such a framework, if implemented, would impact credit creation by potentially increasing depositor confidence (reducing cash drain) but also by imposing stricter prudential norms on banks, influencing their risk appetite and lending decisions. The 'bail-in' clause, in particular, was controversial for its potential impact on depositor behavior and systemic trust.