The Reserve Bank of India's (RBI) move last week to resolve 12 borrowers responsible for a quarter of total non-performing assets (NPAs) of Indian banks is credit positive, ratings agency Moody's Investors Services said on Monday. 

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Moody's said, "This is credit positive for India’s banks because any meaningful resolution under this plan can help improve their overall asset quality. Additionally, it also will set a precedent for resolving nonperforming loans from smaller borrowers. RBI has asked banks to also review other NPAs and finalise a resolution plan over the next six months."

Companies in sectors like steel, power, infrastructure, telecom, etc are the highest borrowers in India that constitute a major chunk of these NPAs or bad loans. 

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Last month the government passed an ordinance that gave the RBI greater legal authority to intervene in non-performing loan resolutions. Moody's said, "Given the strict timelines to resolve a case under the IBC within a maximum period of 270 days (initially 180 days, with a onetime 90-day extension), after which a company will be automatically liquidated, we expect that this directive will significantly expeditethe resolution process and will help in loan recoveries."

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Moody's said that asset quality of banks in India has deteriorated sharply over the past few years, although the pace of this fall has moderated in the past few quarters.