RBI takes close look at 'standstill agreements', plans to tighten norms

RBI plans to tighten norms on such deals between promoters, lenders

The Reserve Bank of India (RBI) has taken a serious view of the recent cases of ‘standstill agreements’ by companies with lenders to delay selling pledged shares.

RBI sources said the central bank was closely monitoring the situation and, if necessary, would tighten norms to dissuade lenders from entering into such agreements with companies.

“The RBI has taken a serious view of the recent cases. The central bank has been particularly working hard to curb all forms of ‘evergreening’ of loans. We may tighten the norms so that lenders, especially non-banking financial companies (NBFCs), are discouraged from entering into such agreements with firms,” a source said.

Recently, the promoter entities of debt-laden Anil Ambani-led Reliance Group announced that it had reached an “in-principle standstill agreement” with at least 90 per cent of its lenders, asking them not to sell pledged shares in the group till September. Days before such a move, Subhash Chandra-led Essel Group had signed a similar agreement with lenders, comprising banks, mutual funds and NBFCs, for a standstill till September 30.

“The promoters of Emami went in the right direction by paring their debt of other group companies which will help in reducing the pledged shares of the promoters in financial firms,” the source added. 

In Emami Ltd’s case, its promoters, the Agarwal and Goenka families, have sold 10 per cent of their stakes for Rs 1,600 crore to pare the debts of other group companies like Emami Cement and Emami Power. The sale effectively brought down the promoters’ holding in Emami Ltd from 72.74 per cent to 62.74 per cent.

Analysts said the lenders and borrowers can enter into any agreement till the time there was a clear intent of repaying the loans and improving the cash flow situation by the borrower with a fixed timeline, and that strict monitoring was required.

“As long as there is a clear underlining intent to raise cash flow and repay the debt, the borrowers and lenders can enter into agreements. The regulator may require the lenders to keep a closer eye and monitor the situation more tightly,” said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services LLP.

The Anil Ambani group will pay the principal and interest to the lenders in line with the scheduled due dates specified in the loan agreements. The company said it had nine lenders at the promoter level, including IndusInd Bank, YES Bank, Templeton MF and DHFL Pramerica MF.

“As per the understanding, 90 per cent lenders will not enforce security and will not sell any of the promoters’ pledged shares till 30 September 2019 on account of lower collateral cover or reduced margin due to the recent unprecedented fall in share prices,” an official spokesperson of the Reliance Group had said in a statement on February 17.

 

The Essel Group had said in a statement on February 3 that it had a formal consent from lenders to not declare default till September 30 “due to the movement in the stock price of Essel Group's mentioned listed corporate entities”.

Zee Entertainment Enterprises Managing Director Punit Goenka had told analysts in a call earlier this month that the standstill agreement was against the loan against shares of Rs 13,500 crore.

In the case of Reliance Group, after the company's shares fell early this month, two of the lenders — Edelweiss and L&T Finance — had invoked the pledges and sold the shares in the open market. This led to a domino effect, with some the listed group companies losing half of their value.

Similarly, a steep fall in stock prices of Essel Group companies led several lenders to dump over Rs 500 crore-worth pledged shares in panic.