Bank's ability to change ownership of stressed firms enhanced

Mumbai: RBI on Thursday allowed banks to upgrade credit facilities of borrowing entities whose ownership has been changed outside strategic debt restructuring scheme (SDR) to "Standard" category upon change in ownership.

This, RBI said is being done to further enhance banks' ability to bring in 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.

The provision, RBI said, could be used by banks subject to certain conditions relating to change in ownership.

Change in ownership, it said "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".

It could also be bringing in a new promoter by issue of fresh shares by the borrowing entity or acquisition of the borrowing entity by another entity.

Earlier in June, RBI had allowed banks to take control of debt-laden companies by converting loans into equity, if a debt restructuring fails to revive them within a stipulated timeframe.

Further, the 'new promoter' should not be a person/ entity/subsidiary/associate from/belonging to the existing promoter/promoter group.

Also, the new promoter should have acquired at least 51 percent of the paid up equity capital of the borrower company.

In another notification on Half yearly/Quarterly Review of Accounts of Public Sector Banks, the RBI said it is "clarified" that Concurrent Auditors will "henceforth submit their NPA review reports to the banks and not to Statutory Central Auditors (SCAs)" undertaking the review.

SCAs, as in the past, will continue to review top 20 branches for half yearly/quarterly reviews and take into account review reports of overseas branches of public sector banks audited by the respective statutory auditor.

"SCAs will necessarily cover advances adversely commented upon in the latest inspection report of RBI, special audit/ special scrutiny, if any carried out by the bank, RBI or any other agency, so that all problem accounts are taken care of during half yearly/quarterly review," it said.