Sebi extends preferential issue relaxations to scheduled banks

Sebi today approved relaxing the preferential share allotment regulations for scheduled banks and financial institutions in an effort to help them recover dues amid rising bad loan woes.
The decision comes against the backdrop of the banking sector being exposed to the risk of "significantly high non- performing assets (NPAs)" and the RBI asking them to take stringent actions to address the issue.
At the meeting of Sebi's board, chaired by Ajay Tyagi, it was decided to exempt scheduled banks and financial institutions from certain provisions of the regulations pertaining to preferential allotments.
Currently, the regulations prohibit an issuer from making preferential allotment to any person who has sold any equity share of the issuer during the six months preceding the relevant issuance date.

Besides, the entire pre-preferential allotment shareholding of the allottees will be locked in for six months.
Currently, mutual funds and insurance companies are exempted from these requirements.

"It is expected that many banks will go aggressively for recovering their dues and in order to achieve this objective, the banks may opt for CDR (corporate debt restructuring)/ (strategic debt restructuring) SDR or bilateral restructuring," Sebi said in a release issued after the board meeting here.
"In order to carry out actions for recovery from a borrower which may be a listed company, banks or financial institutions have sold equity shares of the issuer during the preceding six months of the relevant date," it added.

According to the regulator, such banks or financial institutions might also be among the allottees of the specified securities of the company pursuant to CDR approved scheme under the preferential issue route.