In my last article on "Debt Restructuring by Banks", I had expressed my apprehension that the borrowers had taken
advantage of the incentive for quick implementation of the debt restructuring
given to banks. As per a study, Indian banks' problem loan ratios are
unlikely to fall in 2015-16. Any significant increase in the capital levels of
public sector banks is also not expected over the next two years.
Provisions for mounting non-performing assets; and little capital in hand, put together, squeezes the lending powers of banks. What is the alternative - only recovery, but then the present tools
of recovery available with banks are not
giving desired results. Reserve Bank has come out with a new ammunition - Strategic Debt Restructuring.
RBI observed that in many cases of restructuring
of accounts, borrower companies are not able to come out of stress due to
operational/ managerial inefficiencies despite substantial sacrifice by lending
banks. With a view to ensuring more stake of promoters in reviving stressed
accounts and provide banks with enhanced capabilities to initiate change of
ownership in accounts which fail to achieve the projected viability milestones,
banks may undertake "Strategic Debt Restructuring" by converting loan
dues to equity shares, of course subject to certain stipulations, some are as
below;-
1.
Lenders should collectively
become the majority shareholder by conversion of their dues from the borrower
into equity.
2.
Post the conversion, all
lenders must collectively hold 51% or more of the equity shares issued by the
company.
3.
Lenders should closely monitor
jointly (under Joint Lenders' Form) the performance of the company and consider
appointing suitable professional management to run the affairs of the company.
4.
Lenders should divest their
holdings in the equity of the company as soon as possible to a 'new promoter'
who should not be a person/entity/subsidiary/associate etc (domestic as well as
overseas), from the existing promoter/promoter group. Banks should clearly
establish that the acquirer does not belong to the existing promoter
group.
In public sector banks, the decision taking has
come to a grinding halt due to the continuous sword of regulator, CVC, CBI etc
hanging over their heads. These agencies are always carrying magnifying glasses
to read between the lines. Whether banks will use fearlessly this new tool of
'Strategic Debt Restructuring' with so tough stipulations attached to it.
Whether this new weapon will not lie resting in the armoury of banks. Let's hope for the best.
Tilak Gulati is Assistant General Manager at UCO Bank.
visit me: www.itstrgulati.blogspot.in
Publish your comments below.
Nice attempt Gulati ji in explaining the new guidelines and a possible recovery tool in the hands of banks along with strings attached in implementation.Keep on writing.
ReplyDeleteHowever , the bigger threats is lack of top level of professionalism which is needed to implement it. My fear is that it is easy to convert debt into equity, but very difficult to employ professionals to run the company successfully.
Rajesh agrawal
Ex GM UCOBANK
Nice attempt Gulati ji in explaining the new guidelines and a possible recovery tool in the hands of banks along with strings attached in implementation.Keep on writing.
ReplyDeleteHowever , the bigger threats is lack of top level of professionalism which is needed to implement it. My fear is that it is easy to convert debt into equity, but very difficult to employ professionals to run the company successfully.
Rajesh agrawal
Ex GM UCOBANK