By its circular DBR.BP.BC.No.101/21.04.132/2014-15 dated
08 June 2015 ("Circular"), the Reserve
Bank of India ("RBI") has introduced the
Strategic Debt Restructuring Scheme
("SDR") that may be undertaken by banks
for the revitalization of distressed assets. Pertinently RBI's
circular on Framework for Revitalising Distressed Assets in the
Economy – Guidelines on Joint Lenders' Forum
("JLF") and Corrective Action Plan dated
26 February 2014, provided that the lenders may consider the
possibility of change in the management of the borrower as a part
of restructuring of stressed assets.
Vide this Circular, the RBI has facilitated banks with certain
powers and also specified procedures to initiate a change in
ownership in accounts that have failed to achieve projected
viability milestones and/ or adhere to the critical conditions. The
important features of the SDR are encapsulated below:
1. As per the Circular, the banks may, at their discretion
undertake an SDR by way of converting the whole or part of their
loan into equity shares in the borrowing company in order to
acquire the majority shareholding in the borrowing company. Such a
decision of invoking the SDR must be taken within 30 days of the
review of the particular stressed account by the JLF.
2. The decision of implementing SDR has to be approved by 75 per
cent of the creditors by value and 60 per cent of the lenders by
3. Such conversion of debt into equity must be completed within
90 days of the decision of the creditors.
4. After the conversion into equity, the JLF must collectively
hold 51 per cent or more of the equity shares of the borrowing
company in conformity to limits prescribed under the Banking
Regulation Act, 1949.
5. JLF and the lenders should divest their holding in the equity
of the company as soon as possible.
6. Such conversion of the outstanding debt into equity must be
made at the "Fair Value" to be determined as per the
methodology specified in the Circular.
7. The above pricing under the SDR has been exempted from
certain specified provisions of SEBI Regulations. The provisions of
SDR are also applicable to accounts that have been previously
restructured before the issuance of this Circular provided that the
conditions mentioned in the Circular for such accounts are complied
8. Such SDR accounts will not be treated as restructured for the
purposes of asset classification and provisioning norms.
For complete text of the Circular, please click
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