RBI allows banks to control company if debt restructuring fails

Mumbai, June 8 (IANS) The Reserve Bank of India (RBI) on Monday allowed banks to recast a company’s debt under a “strategic debt restructuring” (SDR) scheme wherein the lender must hold 51 percent or more of the equity after the debt-for-share conversion.

“Post the conversion, all lenders under the JLF (joint lenders’ forum) must collectively hold 51 percent or more of the equity shares issued by the company,” the RBI said in a notification.

The central bank said that banks will have to closely monitor the performance of the company and should appoint professional management to run the company. At the same time, the banks themselves should try and sell their stake “as soon as possible,” it added.

The RBI announced a set of guidelines on the SDR scheme, which provides a more flexible process for lenders to recover bad loans.

Other measures announced on Monday include allowing lenders to convert debt to equity within 30 days of the review of the company accounts.

Moreover, lenders who acquire shares of a listed company under a restructuring will be exempted from making an open offer, as per rules from capital markets regulator Securities and Exchange Board of India (Sebi), the RBI said.

Sebi had already allowed such conversion of loan into equity shares on March 22.

These restructuring norms will apply to all company accounts before Monday, the RBI said.

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