RBI gives NBFCs more power to change ownership in stressed cos

The Reserve Bank today allowed non-banking finance companies to upgrade credit facilities extended to borrowing entities whose ownership has been changed outside strategic debt restructuring (SDR) to the 'standard' category.
RBI said the move will enhance NBFCs' ability to bring in a change in ownership of borrowing entities that are under stress primarily due to operational/ managerial inefficiencies despite substantial sacrifices made by lending banks.
The central bank said NBFCs could use this provision subject to certain conditions.
"Change in ownership may be by way of sale by lenders, to a new promoter, of shares acquired by invocation of pledge or by conversion of debt of the borrower into equity outside SDR, or bringing in a new promoter by issue of fresh shares by the borrowing entity or acquisition of the borrowing entity by another entity," RBI said in a notification here today.

The 'new promoter' should not be a
person/entity/subsidiary/associate (domestic as well as overseas), from/belonging to the existing promoter/promoter group.

NBFCs should clearly establish that the acquirer does not belong to the existing promoter group, it said.
At the time of takeover of the borrowing entity by a 'new promoter', NBFCs may refinance the existing debt of the borrowing entities, considering the changed risk profile, without treating the exercise as 'restructuring' subject.
NBFCs may reverse the provision held against the said account only when all the outstanding loan/facilities of the borrowing entities perform satisfactorily during the 'specified period'.