Mumbai, June 9 (KNN) Keeping in view the mounting bad loans in the last few months, the Reserve Bank of India (RBI) has come up with fresh guidelines under which the commercial banks can acquire a majority stake in the companies that fail to repay loans and come under the strategic debt restructuring (SDR) scheme.
 
The apex bank said that it has been observed that in many cases of restructuring of accounts, borrower companies are not able to come out of stress due to operational/ managerial inefficiencies despite substantial sacrifices made by the lending banks. In such cases, change of ownership will be a preferred option.
 
Henceforth, the Joint Lenders’ Forum (JLF) should actively consider such change in ownership under the above Framework issued vide the circular dated February 26, 2014, said RBI.
 
According to the RBI guideline, both under JLF and CDR mechanism, the restructuring package should also stipulate the timeline during which certain viability milestones (e.g. improvement in certain financial ratios after a period of time, say, 6 months or 1 year and so on) would be achieved. 
 
 
RBI said banks that decide to recast a company's debt under the SDR scheme must hold 51 per cent or more of the equity after the debt-for-share conversion. Banks will also be allowed to convert debt to equity within 30 days of the review of the company's accounts.
 
"In addition, lenders who acquire shares of a listed company under a restructuring will be exempted from making an open offer, as per rules from the Securities and Exchange Board of India (Sebi)", RBI said.
 
"Provisions of the SDR would also be applicable to accounts which have been restructured before the date of this circular provided that necessary enabling clauses, as indicated in the above paragraph, are included in the agreement between the banks and borrower", RBI said. 
These restructuring norms will also apply to all company accounts before Monday", the RBI added.
 
The RBI circular said that the general principle of restructuring should be that shareholders bear the first loss rather than debt holders.
 
With this principle in view and also to ensure more 'skin in the game' of promoters, JLF or the corporate debt restructuring cell (CDR) may consider the possibility of transferring equity of the company by promoters to lenders to compensate for their sacrifices.
 
Promoters must also consider infusing more equity into their companies.
Banks will also have to consider the option of transferring promoters' holdings to a security trustee or an escrow arrangement till turnaround of company.
 
This will enable a change in management control should lenders favour it. The RBI circular further states that it has been observed that in many cases of restructuring of accounts, borrower companies are not able to come out of stress due to operational or managerial inefficiencies despite substantial sacrifices made by lending banks.
 
In such cases, change of ownership will be a preferred option. Henceforth, the JLF should actively consider such change in ownership. (KNN Bureau)