Banks may seek more equity from highly leveraged firms

Banks may ask companies that are already highly leveraged to bring in higher equity before seeking fresh loans…

Banks may ask companies that are already highly leveraged to bring in higher equity before seeking fresh loans, RBI deputy governor SS Mundra said on Wednesday.

“If at all, there is high leverage, it does not mean that the company cannot be financed further. The only thing for further financing is that the banks may demand (from) them (companies) to bring in higher equity. Ultimately, it is for the individual banks to take decisions on what kind of debt-equity ratio they would be comfortable with,” Mundra told rpeorters on the sidelines of a CII event.

He was replying to questions on whether RBI would ask lenders to be cautious on giving fresh loans to highly leveraged companies as there were some allegations that fresh loans were offered recently to such firms. He urged lenders to consider ‘real equity’ of companies at the time of offering loans.

Mundra urged lenders to maintain some ‘self-discipline’ to thwart any dilution of regulatory norms while offering loans to entities to improve ‘performance’.

“Stress is there on the banks to improve performance in every quarter. That is where the dilutions start coming. So, quarter-to-quarter should be pursued in a healthy manner, otherwise it could be detrimental,” he said.

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