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Rating agency Moody’s on Monday said the Reserve Bank of India (RBI)’s new rules for strategic debt restructuring can help Indian banks significantly improve their ability to resolve troubled corporate loans.
Banks with large corporate exposure are expected to benefit, it said, specially mentioning State Bank of India and IDBI.
The RBI guidelines allow banks to acquire majority equity stakes in corporates that are unable to honour their debt commitments. Acquiring a majority stake would also make it easier for the banks to install a new management. Traditionally, it has proven difficult for an external party to gain control of a company because existing management has too many tools to thwart an external party’s efforts. This has been a key impediment in turning around companies in financial stress, Moody’s said.
Srikanth Vadlamani, vice-president — senior credit officer, Moody’s at Singapore, said the agency expects these changes to positively affect banks’ corporate loan asset quality.
“These new rules arrive ahead of what we expect will be a significant number of project finance loans, especially in the power sector, coming up for renegotiation this year,” it said.
The guidelines for the conversion price of debt to equity are also favourable to the banks, Moody’s added.
Banks with large corporate exposure are expected to benefit, it said, specially mentioning State Bank of India and IDBI.
The RBI guidelines allow banks to acquire majority equity stakes in corporates that are unable to honour their debt commitments. Acquiring a majority stake would also make it easier for the banks to install a new management. Traditionally, it has proven difficult for an external party to gain control of a company because existing management has too many tools to thwart an external party’s efforts. This has been a key impediment in turning around companies in financial stress, Moody’s said.
Srikanth Vadlamani, vice-president — senior credit officer, Moody’s at Singapore, said the agency expects these changes to positively affect banks’ corporate loan asset quality.
“These new rules arrive ahead of what we expect will be a significant number of project finance loans, especially in the power sector, coming up for renegotiation this year,” it said.
The guidelines for the conversion price of debt to equity are also favourable to the banks, Moody’s added.
