The modifications made to the strategic debt restructuring (SDR) mechanism by the Reserve Bank of India (RBI) in February this year will now be made applicable to non-banking finance companies (NBFCs) as well, the banking regulator said in a notification on its website on Thursday.
Between March and October 2015, the RBI through three notifications said to the extent possible, the regulator’s framework for revitalising distressed assets in the economy was being made applicable to NBFCs as well.
In February this year, the central bank made a few changes to the framework which included asking banks to provide at least 15% of their residual loan to a company while converting debt to equity under SDR norms by the end of the 18-month period from the reference date.
The RBI had said it is possible that lenders may not be able to sell their stake to new promoters within 18 months thus revoking the stand-still classification benefit, resulting in sharp deterioration in the classification of their remaining loan exposures.
“The required provision should be made in equal installments over the four quarters,”it had said, adding that the provision could be reversed only when all the outstanding loans in the account perform satisfactorily during the ‘specified period’ after transfer of ownership/management control to new promoters.
The RBI had also allowed banks the asset classification benefit provided they divest a minimum of 26% of the shares of the company (from 51% earlier) to the new promoters within 18 months and the new promoters take over management control.
Further, the regulator had also permitted joint lenders’ forums (JLFs) flexibility in the time taken for completion of individual activities up to conversion of debt into equity in favour of lenders (up to 210 days from the review of achievement of milestones).