Banks to get pricing flexibility while raising stake in recast-hit firms

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Mumbai | Published: March 14, 2015 12:10:57 AM

Banks have been asking for a higher share of equity so that they enjoy the upside when the company recovers

The Securities and Exchange Board of India (Sebi) is likely to allow banks more flexibility in pricing when it comes to debt-to-equity conversion in companies whose loans are restructured, according to sources familiar with the matter.

“The idea is a sound one, provided the conversion of debt into equity takes place at a reasonable price,’ PK Malhotra, DMD, State Bank of India (SBI), had said earlier, adding that it would make the project more viable. The Sebi formula resulted in banks buying equity at a much higher price than the ruling market price. Currently, the threshold for ownership stands at 10% of the total amount.

In December, the central bank had supported the plan, saying it was a global practice and the idea was to give banks some flexibility to help put the project back on track.

“The key is to see that banks don’t overpay for the shares and we are in discussions with Sebi  to see how that can be achieved,” RBI governor Raghuram Rajan had said, adding that minority shareholders should not get hurt in the process.

Banks have been asking for a higher share of equity so that they enjoy the upside when the company recovers.

The total amount of loans recast in FY14 has been more than R1 lakh crore on the back of R1.3 lakh crore of referrals. The total non-performing assets in the banking system are R3.03 lakh crore at the end of third quarter of fiscal 2015, an increase of 11% sequentially.

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