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India's bankruptcy laws tweaked to help resolve problems at non-bank lenders

MUMBAI (Reuters) - India has amended its insolvency and bankruptcy rules to allow for greater flexibility in resolving problems at troubled non-banking finance companies (NBFCs), the government said in a statement on Friday.

The change follows debt defaults at shadow lender Dewan Housing which owes close to 1 trillion rupees ($14 billion) to its debtors, who include banks and mutual funds.

The new rules however, say insolvency proceedings against such NBFCs or financial service providers can only go ahead if the appropriate regulator requests such action.

India’s shadow banking sector has been struggling since last year’s collapse of the infrastructure lending giant IL&FS.

That incident sent shockwaves through the shadow banking system, leading to a liquidity crisis at some NBFCs and exposing problems facing others including Dewan Housing.

($1 = 71.3500 Indian rupees)

Reporting by Nupur Anand; Editing by Hugh Lawson