1. ‘Banks should take over defaulting firm’s management using SDR’

‘Banks should take over defaulting firm’s management using SDR’

Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday said that banks should take over the management of a company even while looking for a buyer, using the strategic debt restructuring (SDR) scheme.

By: | Mumbai | Published: April 6, 2016 12:32 AM

Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday said that banks should take over the management of a company even while looking for a buyer, using the strategic debt restructuring (SDR) scheme.

He said that the RBI has been reviewing the SDR scheme and have offered some revised suggestions to banks. “What is important is that they take over a company when they think that genuinely management change can make a difference,” Rajan said.

He added that there is no point in leaving control in the hands of the original management while looking for a buyer as it puts the company at risk during that period. “We have therefore asked banks to take action as soon as they invoke SDR rather than wait and some measures that have been suggested by our review of the SDR mechanism,” Rajan explained.

The governor said that although more buyers are coming to the system, a full-fledged operation of an SDR is yet to be seen. “As and when that happens we will look at that and take more lessons in that process,” he said.

SDR rules allow banks to convert debt at a price below the current market value or an average of closing prices during the ten trading days before the joint lenders’ forum (JLF) decision. They can now own at least 51% of the equity of the company.

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