Thursday, October 15, 2015

More power to banks to change ownership of stressed firms

Reserve Bank of India has further enhanced the ability of banks to effect a change in ownership of borrowing entities which are under stress primarily due to operational/ managerial inefficiencies despite substantial sacrifices made by the lending banks. RBI in June 2015 had allowed banks, at their discretion, to undertake SDR by converting loan dues to equity shares. Change in ownership may be by way of sale by the lenders, to a new promoter, of shares acquired by invocation of pledge or by conversion of debt of the borrower into equity outside SDR, or bringing in a new promoter by issue of fresh shares by the borrowing entity or acquisition of the borrowing entity by another entity. At the time of takeover of the borrowing entity by a ‘new promoter’, banks may refinance the existing debt of the borrowing entities, considering the changed risk profile. RBI and SEBI have also
exempted such cases from Takeover Code and guidelines of such issue in case of Listed Companies.

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