SBI for restoring 30% equity norm in debt recast

After RBI announced that it would soon come out with flexible norms for loan restructuring, SBI has demanded that it be allowed to convert up to 30 per cent of debt into equity.
"We use to do up to 30 per cent (picking up equity in the affected company in the past), which has been brought down to 10 per cent. We have asked them (RBI) to restore it to the previous level," State Bank of India Chairperson Arundhati Bhattacharya told reporters here today.
Reserve Bank Governor Raghuram Rajan at the December 2 policy meet had said the central bank would soon come out with two new key relaxations for loan recast.

"One is a move towards 5:25 restructuring for existing projects which are standard and another is to allow banks to take equity in restructuring to a greater extent than they currently can," Rajan had said.
The 5:25 scheme envisages banks to lend to infra projects for up to 25 years. Under the plan, the bank can off- load the loan from its books by selling it to another lender or can choose to restructure the debt so that it can contain asset liability mismatch to some extent.
"There is substantial financial stress in some sectors. We have been taking a holistic view instead of a sector by sector approach keeping in mind the need for a financial restructuring while limiting the extent of forbearance," Rajan had said.

The RBI is also in discussions with capital markets regulator Sebi about how to price such transactions so that interests of all stakeholders are protected.

"We should have a proper formula for pricing and not necessary it should be based on last two weeks' average, as sometimes it gives inflated valuation," Bhattacharya said.
She said the pricing should be a negotiated valuation between the company owner and banker and it should not be restricted to the current Sebi formula.
Following the recent farm loan waivers in Andhra Pradesh and Telangana, SBI has reported around Rs 800 crore of fresh bad loans, Bhattacharya added.