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