The Reserve Bank of India has given more leeway to companies that wish to go in for debt restructuring.
In a notification issued, RBI said that promoters of companies seeking debt recast could be allowed to bring in 50 per cent of their sacrifice upfront and the balance within a period of one year.
The RBI's decision follows representation by banks and the Indian Banks' Association that corporates under stress are finding it difficult to bring in the promoters' share of sacrifice and additional funds upfront, on some occasions.
According to RBI rules, promoters' sacrifice and additional should be a minimum of 15 per cent of banks' sacrifice. However, the promoters were required to bring in the funds upfront and not over a period of time.
Concessions
“..if banks are convinced that the promoters face genuine difficulty in bringing their share of the sacrifice immediately and need some extension of time to fulfil their commitments, the promoters could be allowed to bring in 50 per cent of their sacrifice, i.e. 50 per cent of the 15 per cent, upfront and the balance within a period of one year,” RBI said.
The RBI also clarified that the contribution by the promoter need not necessarily be brought in cash and can be brought in the form of de-rating of equity, conversion of unsecured loan brought by the promoter into equity and interest-free loans.
Action on default
However, in case the promoters fail to bring in their balance share of sacrifice within the extended time limit of one year, banks will have to revert to classifying such accounts as per the asset classification norms, the RBI said.
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