Banks allowed to upgrade credit facilities of a company, whose ownership has been changed outside
strategic debt restructuring mechanism, to ‘standard’
MUMBAI : The Reserve Bank of India empowered banks to bring about changes in ownership of borrowing entities under stress due to managerial or operational issues outside the strategic debt restructuring mechanism subject to certain riders.
Banks have also been allowed to upgrade credit facilities of a company whose ownership has been changed outside strategic debt restructuring mechanism, to ‘standard’.
Lenders have already been given such leeway in cases involving multiple lenders under the strategic debt restructuring mechanism. In cases outside strategic debt restructuring, banks can bring about a change in ownership by way of sale to a new promoter or by debt to equity conversion to the lender or by bringing in a new promoter. However, in cases being restructured outside strategic debt recast system, exemptions available on the Securities and Exchange Board of India norms on pricing will not be available, the RBI said.
While a change in promoter can lead to an upgrade to standard category for the credit facility, a bank cannot reverse the provisions on the account till they see satisfactory repayment in the period post the change.
An upgrade is permitted in such cases only where the new promoter does not belong to the existing promoter group or is an associated entity. For an upgrade in loan classification to standard, the new promoter must acquire at least 51% of the paid-up equity of the borrower company.
“If the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51%, the new promoter should own at least 26% of the paid up equity capital or up to applicable foreign investment limit, whichever is higher, provided banks are satisfied that with this
equity stake the new non-resident promoter controls the management of the company,” the RBI said.
When a new promoter takes over the borrower entity, banks can refinance the existing debt of the company without tagging it as restructuring, subject to banks making necessary provisions as per regulatory norms. -Cogencis
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…eases norms for some debt rejig via joint lenders forum
MUMBAI : The Reserve Bank of India released revised guidelines to revamp the joint lenders’ forum to help banks address the issue of stressed loans.
Joint lenders’ forum is a mandatory platform that banks have to set up in case there is a concern over slippage or restructuring of any large account. This helps streamline the banking industry’s response to a possible default, with all lenders having equal information on the total liabilities and situation.
To ensure banks’ boards approve decisions taken by the joint lenders’ forum, the RBI has asked the lenders to depute “sufficiently empowered” senior officials for deliberations.
Also, the forum will decide the ‘corrective action plan’, which will be placed before an Empowered Group of lenders who will rectify and restructure the loans.
Members participating in the Empowered Group should not be lower than the rank of an executive director of a public sector bank and equivalent, it said. This Empowered Group will have a representative each of State Bank of India and ICICI Bank as standing members. It will also consist of a representative each of the top three lenders to a borrower. Additionally, there will be a representative of two largest banks in terms of advances who do not have any exposure to the borrower, the RBI said.