Saturday, June 15, 2013

RBI makes debt recast norms more stringent

The Reserve Bank of India (RBI) has said that all loans recast after April 1, 2015, should be classified as non-performing asset (NPA). Also, from June 1, 2013

  • Provision for existing stock of recast debt to be raised from 2.75% to 5% in a phased manner over three years
  • If principal converted into debt or equity, it will be held under the available-for-sale category
  • Banks not to artificially reduce the net present value of cash flows by resorting to any sort of financial engineering
  • Banks to ensure infrastructure units achieve viability in 8 years and other cases in 5 years
  • Promoters' contribution should be a minimum 20% of banks' sacrifice or 2% of restructured debt, whichever is higher
  • Banks to insist on higher sacrifice from promoter if exposure is large
  • Conversion of debt into preference shares the last resort, with a cap of 10% of restructured debt
  • Only listed companies' debt could be converted into equity
  • Promoters' personal guarantee must, corporate guarantee not a substitute for personal guarantee

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