Financial Daily from THE HINDU group of publications
Monday, Apr 07, 2003
Financial Daily from THE HINDU group of publications Monday, Apr 07, 2003 |
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Money & Banking
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Non-Performing Assets Loan conversion into shares — Banks get more leeway against defaulters Richa Mishra
NEW DELHI, April 6 THE Government has allowed all scheduled banks to convert debentures or loans of a company into shares without having to go through a special resolution. Earlier, the facility was available only to public financial institutions (PFIs). The Department of Company Affairs (DCA) had recently amended the Public Companies (Terms of Issue of Debentures and Raising of Loans with Option to Convert such Debentures or Loans into Shares) Rules, 1977, for the purpose. However, co-operative banks, regional rural banks and foreign banks could not use these options, the DCA said. Besides, this move comes with a caveat. The department has stated that a public financial institution or a scheduled bank will not convert all or any part of such debentures or loans unless the company that has issued the debentures or raised the loan has defaulted in the repayment or redemption of, or payment of interest on, such loans or debentures. Further, such scheduled bank or public financial institution will have to give the company notice of its intention to convert such loans or debentures at least 30 days prior to the intended date of conversion. "Based on the recommendation of the Securities and Exchange Board of India (SEBI), we have taken this decision," a DCA official told Business Line. SEBI took up the issue with DCA on a request made by some of the scheduled banks for the same, the official elaborated. Section 81 of the Companies Act provides for further issue of share capital if the company passes a special resolution. It, however, states that the provision will not apply to a private company provided that the terms of issue of debentures or loans are in conformity with the rules prescribed by the department.
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