In a bold move, the RBI today empowered banks to take control of a company if it fails to meet specific milestones under the corporate debt restructuring (CDR) plan.
Under a new strategic debt restructuring (SDR) scheme, banks, as majority owners, can then find professionals to run the company and then divest stake in order to recover their dues.
The central bank has proposed a slew of measures, including setting a timeline of 30 days from the review of the restructured loan account for invoking the SDR. All loan agreements will include clauses to invoke the SDR.
If this too fails, the recovery action kicks in. Under the SDR, the conversion of debt into equity is to be completed within 90 days of the date of approval of the SDR package by the JLF.
A senior public sector bank official said since banks will get control of a company under the SDR scheme, they will be able to check diversion of funds, put in place a professional management, turnaround the company and later sell their equity holding to recover their dues. To encourage conversion of debt into equity, the RBI said the invocation of the SDR will not be treated as restructuring for the purpose of asset classification and provisioning norms. Equity shares acquired and held by banks will be exempt from the mark-to-market requirement.
To encourage new promoters to come in, the asset classification of the account may be upgraded to ‘Standard’ post divestment of stake by the lending banks. The conversion of outstanding debt (principal as well as unpaid interest) into equity should be at a ‘fair value’, the RBI said.
In the case of listed companies, the acquiring entity will be exempt from the obligation of making an open offer.