SBI seeks promoter contribution for recasting corp loans

By: |
September 23, 2020 4:30 AM

In frequently asked questions (FAQs) released on its website, SBI said that promoters of unlisted entities will have to provide personal guarantee for corporate restructuring.

The bank has set the minimum promoter’s contribution in the form of capital infusion at 10-15% of the additional loans sanctioned.Both HUL and SBI said the partnership will also have a social impact as many of the stakeholders who will make use of the service will be from the lower strata of the society.

State Bank of India (SBI) is asking promoters of companies to either furnish personal guarantees or pledge their shares with the lender, if they want a corporate loan restructured. In addition, borrowers seeking a loan recast will also have to pay higher interest to SBI. In frequently asked questions (FAQs) released on its website, SBI said that promoters of unlisted entities will have to provide personal guarantee for corporate restructuring.

Similarly, promoters of listed entities will have to pledge their shares to seek restructuring on account of Covid-19. Under the scheme, additional moratorium of up to two years for repayment of principal in installments and an interest moratorium up to a maximum of six months can be given for term loans. The Reserve Bank of India (RBI) had earlier allowed repayment break for six months from March 1, 2020. After the expiration of moratorium in August, RBI had allowed restructuring of corporate loans stressed due to Covid-19 with strict entry barriers. The central bank had specified five key ratios across 26 sectors, which lenders must follow while restructuring of corporate accounts.

The public sector lender has also given facility of need based additional funding for working capital loans to be paid in not more than five years. The bank has set the minimum promoter’s contribution in the form of capital infusion at 10-15% of the additional loans sanctioned.

On the question whether there would be change in pricing of loan, SBI said, “Yes, there will be change in pricing to offset cost of additional provisions that the bank is required to make for extending the benefits under this resolution framework.” The banking regulator has directed banks to make 10% capital provisioning for restructuring of loans.
Funded interest term loan (FITL) or working capital term loan (WCTL) or working capital demand loan (WCDL) sanctioned under the framework shall be 100 basis points (bps) above current pricing on working capital loans, SBI said.

The companies applying for restructuring will have to submit a board resolution stating that the company’s operations were under stress on account of Covid-19. The companies will also have to provide goods and services tax (GST) returns from April 2020 till the latest available month. For listed companies, the latest financials filed with stock exchanges will also have to be submitted along with cash budget and projected financials for the period of loan.
The last date for corporates to apply for restructuring of Rs 1,500 crore and above is November 15, 2020. For loans below Rs 1,500 crore, applications can be sent till November 30, 2020. However, it would be advisable to submit your applications by November 15, bank said.

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