RBI enhances bank's ability to change corporate ownership

Increasing their ability to change ownership of borrowing entities under stress due to operational and managerial inefficiencies, the RBI on Thursday permitted banks to upgrade the loan accounts to "standard" class.

In a statement, the Reserve Bank of India (RBI) said it has decided to allow banks to upgrade credit facilities given to borrowing entities whose ownership has been changed outside the Strategic Debt Restructuring Scheme (SDRS).

However the leeway is subject to certain conditions like the ownership change may be by way of lenders selling to a new promoter their stakes acquired by conversion of debt into equity outside SDR or by bringing in a new promoter by issue of fresh equity.

While the bank can classify the loan account as "standard" on change of ownership, the provision made against that account cannot be reversed.

Further the new promoter should not be a person/entity/subsidiary/associate etc. (domestic as well as overseas), from/belonging to the existing promoter/promoter group and the banks should establish this fact. The new promoter should also have acquired at least 51 percent of the paid-up equity capital of the borrower company.

If the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51 percent, the he/she should own at least 26 percent of the paid-up equity capital or up to applicable foreign investment limit, whichever is higher.

The banks are to be satisfied that the new non-resident promoter controls the management of the company.