Reserve Bank of India relaxed Change in Ownership Norms of Borrowing Entities
The relaxation will offer more flexibility to banks to bring in a change in ownership of borrowing entities which are under stress due to operational/ managerial inefficiencies.
The Reserve Bank of India (RBI) on 24 September 2015 announced relaxation in norms that allow banks to upgrade credit facilities extended to borrowing entities upon a change in ownership, only if the ownership has been changed outside Strategic Debt Restructuring Scheme (SDR).
The Banker’s bank announced that the banks can treat loans to stressed companies that have undergone ownership changes as standard loans, provided the stress was due to operational or managerial inefficiencies.
The relaxation will offer more flexibility to banks to bring in a change in ownership of borrowing entities which are under stress due to operational/ managerial inefficiencies despite substantial sacrifices made by the lending banks.
However, RBI announced that the upgrade in the asset classification is subject a few conditions:
• As per the announcement, the new promoter should not be a person/entity/subsidiary/associate etc. (domestic as well as overseas), from/belonging to the existing promoter/promoter group.
• The new promoter should have acquired at least 51 per cent of the paid up equity capital of the borrower company.
• If the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51 per cent, the new promoter should own at least 26 per cent of the paid up equity capital or up to applicable foreign investment limit, whichever is higher, provided banks are satisfied that with this equity stake the new non-resident promoter controls the management of the company.
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