In addition, Moody's said there could be a significant differentiation between bank senior unsecured debt and deposit ratings resulting from the principle of depositor preference, as currently defined under the proposal. The high-level committee report specifically stated depositor preference as a policy objective, which excludes deposits, inter-bank liabilities and short-term debt from losses in order to limit systemic instabilities.

"If legal and administrative structures recommended in the report are established, it will increase risks for bank creditors," the Moody's note said, adding "the financial resolution authority (FRA) would be able to impose losses on all creditors to the extent necessary for protection of depositor claims." The other recommendations were setting up an independent regulatory institution called FRA, with the ability to "bail in" all stakeholders in a resolution process except for stakeholders in deposits, inter-bank liabilities and short-term funds.

The report has also called for creating a framework for "prompt corrective action" that may apply increasing levels of regulatory oversight and prevent institutions becoming progressively weaker. Moody's said that while depositor preference is usually only applied to natural persons and not legal persons, the scope of the proposed modifications extends depositor preference significantly beyond what is usual, for example, to the coverage of interbank deposits.

Such a policy could be credit negative for other senior unsecured creditors should it place a very large percentage of liabilities ahead of them in the queue in the event of insolvency. At the same time, Moody's said the proposed changes would not necessarily eliminate probability of support completely for those other senior unsecured creditors. Normally, resolution authorities reserve the right to choose resolution tools aside from bail in to avoid the systemic risks of contagion.

After the 2008 global credit crisis, the government, along with other G-20 members of the Basel-based Financial Stability Board (FSB), had agreed to comply by the end of 2015 with the "key attributes of effective resolution regimes" that the FSB published in October 2011. In June 2012, the government set up a working group to explore potential gaps between the FSB key attributes and the country's existing bank resolution framework and the report was submitted on May 2 this year.

READ MORE: 5 Questions Every First Time Credit Card Buyer Should Ask

India Most Loved Market in Asia, Says HSBC