Debt Restructuring Scheme – Overhaul by RBI

Debt Restructuring Scheme – Overhaul by RBI

With a view to remove the Corporate Stress, Reserve Bank of India, made far-reaching changes to the present loan restructuring schemes like S4A, 5/25 and SDR.  The RBI has now increased the time limit of 90 days to 180 days given to the lenders for bringing out a Restructuring package, under S4A scheme (Sustainable Structuring of Stressed Assets). Also RBI added, that there is need for review of the processes involved in the resolution plan for which a reasonable time was required.

Also, the proposed step would complement the rules across different restructuring schemes, since the time given for other schemes like Joint Lenders’ Forum (JLF) is 180 days.  One of the major changes made to the Strategic Debt Restructuring (SDR) Scheme is that

  • The new promoter should have acquired at least 26 per cent of the paid up equity capital of the borrower company.
  • The new promoter of the company will also be having control over the borrower company, in line with the definition in the Companies Act 2013.
  • The new promoter should be the single largest shareholder of the borrower company, which in turn will permit the promoter to make sweeping changes visa-a-vis board and operations.

RBI has also come out with changes in other schemes wherein

  • Banks are permitted to extend repayment schedule of loans to 25 years, with permission to refinance at the end of five years.
  • Also the 5/25 scheme is permitted to be provided to the new project loans which was not permitted earlier.

The scheme is also permitted to be extended to the existing loans, with an aggregate exposure of Rs. 250 crore to banks, which was earlier set as Rs. 500 crores.

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