Banks can change rights of owners prior to NPA load, states RBI

0
326

The banks have the authority to change the rights of an errant corporate even ahead of the specific loan account turns bad. The two largest lenders in the country – State Bank of India as well as ICICI Bank will play the major role in turning a company upside down after it defaults. The two measures that were announced by the RBI (Reserve Bank of India) state that they are aimed at checking the sticky loans and powering the dodging borrowers to fall in the line.

So far, the banks could exercise these powers only after a pressured loan was restructured and the borrower was given another chance to turn it around. This was let under the SDR (strategic debt restructuring) scheme that was introduced by the RBI in the month of June this year. This scheme is aimed to give the lenders the right to salvage the sticky loans and handle the difficult borrowers.

On Thursday, while announcing the new rules, RBI also tightened the rules in the favor of the banks to let a change of shareholding and management out of SDR mechanism. This also applies to the companies that default or do not meet the other loan covenants.

This will give the banks the flexibility to take the right action before a loan account becomes a non-performing asset (NPA). The RBI has let such loans where there is a change in the ownership by force in order for the banks to treat these as standard assets that require no provisioning.

A regular or standard account will make that the company operating under the new promoter gets the working capital as well as the other facilities from the lenders. This way, the banks will get a better bargaining right while dealing with the pressured companies that face the risk of turning into NPAs, stated the executive director of IDBI, RK Bansal.

 

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here