Banks get further leeway in debt recast if promoter changes
RBI has allowed banks additional time for classifying a restructured asset as non-performing by extending the DCCO by up to 2 yrs
The Reserve Bank of India (RBI) has allowed banks additional time for classifying a restructured asset as non-performing by extending the date of commercial commencement (DCCO) by up to two years for projects in case the ownership of the project changes.
According to the new norms, banks might permit extension of DCCO up to a further period of two years for infrastructure projects stuck due to court cases, in addition to the two years' leeway that was given earlier. One year extension is granted when the project is delayed due to reasons which are beyond the control of the promoters.
For project loans for the non-infrastructure sector, other than commercial real estate exposures, DCCO could be extended by one more year. The new norms also said if the implementation of the project has been stalled primarily due to inadequacies of the existing promoters and if a change in ownership takes place before the DCCO, extension of DCCO by two years is allowed now.
It is also mandated that the new promoters should own at least 51 per cent of the paid up equity capital of stake in the acquired project. In case the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51 per cent, the new promoter should own at least 26 per cent stake.
"The new owners/promoters are expected to demonstrate their commitment by bringing in substantial portion of additional monies required to complete the project within the extended time period," RBI said. "Banks should establish that implementation of the project is stalled/affected primarily due to inadequacies of the current promoters/management and with a change in ownership there is a very high probability of commencement of commercial operations by the project within the extended period."
The regulator has also mandated that the project in consideration should be acquired by a new promoter with sufficient expertise in the field of operation. "If the acquisition is being carried out by a special purpose vehicle (domestic or overseas), the bank should be able to clearly demonstrate that the acquiring entity is part of a new promoter group with sufficient expertise in the field of operation," RBI said.
According to the new norms, banks might permit extension of DCCO up to a further period of two years for infrastructure projects stuck due to court cases, in addition to the two years' leeway that was given earlier. One year extension is granted when the project is delayed due to reasons which are beyond the control of the promoters.
For project loans for the non-infrastructure sector, other than commercial real estate exposures, DCCO could be extended by one more year. The new norms also said if the implementation of the project has been stalled primarily due to inadequacies of the existing promoters and if a change in ownership takes place before the DCCO, extension of DCCO by two years is allowed now.
It is also mandated that the new promoters should own at least 51 per cent of the paid up equity capital of stake in the acquired project. In case the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51 per cent, the new promoter should own at least 26 per cent stake.
"The new owners/promoters are expected to demonstrate their commitment by bringing in substantial portion of additional monies required to complete the project within the extended time period," RBI said. "Banks should establish that implementation of the project is stalled/affected primarily due to inadequacies of the current promoters/management and with a change in ownership there is a very high probability of commencement of commercial operations by the project within the extended period."
The regulator has also mandated that the project in consideration should be acquired by a new promoter with sufficient expertise in the field of operation. "If the acquisition is being carried out by a special purpose vehicle (domestic or overseas), the bank should be able to clearly demonstrate that the acquiring entity is part of a new promoter group with sufficient expertise in the field of operation," RBI said.
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First Published: Apr 07 2015 | 12:04 AM IST