Tuesday, September 29, 2015

Prudential Norms on Change in Ownership of Borrowing Entities (Outside Strategic Debt Restructuring Scheme)

Banks may upgrade the credit facilities whose ownership have been changed outside SDR, to ‘Standard’ category, subject to the following guidelines:
(i) Change in ownership may be by way of sale of shares, acquired by invocation of pledge or by conversion of debt into equity outside SDR, or bringing in a new promoter by issue of fresh shares or acquisition of the borrowing entity by another entity. However, the exemptions from SEBI regulations permitted under SDR guidelines will not be available;
(ii) On such change in ownership, credit facilities may be upgraded as ‘Standard’. However, the provision held as on the date of change shall not be reversed except as in (v) below;
(iii) The upgrade is subject to the following conditions:
a.       Banks should clearly establish that the acquirer does not belong to the existing promoter group;
b.      The new promoter should have acquired at least 51 per cent of the paid up equity capital of the borrower company. If the new promoter is a non-resident, banks are to be satisfied that with this equity stake the new non-resident promoter controls the management of the company.
(iv) At the time of takeover, banks may refinance the existing debt, considering the changed risk profile, without treating the exercise as ‘restructuring’ subject to banks making provisions for any diminution in the fair value of the existing debt on account of the refinance;
(v) Banks may reverse the provision only when all the facilities,  perform satisfactorily during the ‘specified period’ (one year as per norms on restructuring);
(vi) In case of unsatisfactory performance during the specified period, the asset classification would be made with reference to the repayment schedule that existed before the change in ownership. In case the bank exits the account completely, the provision may be reversed as on the date of exit.

Based on RBI Circular dt 24/9/15. Please visit www.rbi.org.in for any further clarification if required…..          Poppy