Sebi notifies debt conversion norm for banks

Published on May 07, 2015 12:50:53 PM

To help lenders deal with defaulting borrowers, Sebi has notified new norms for banks to convert their debt into equity in distressed companies, a move that may lead to a sharp rise in restructuring of bank loans.

The decision to tweak the pricing formula for conversion of debt into equity would also pave the way for bankers to have a larger say in activities of a distressed company by acquiring majority stake and taking over the management.

The total non-performing assets of the public sector banks stand at nearly Rs 3 lakh crore, while top 30 defaulters are sitting on bad loans worth Rs 95,122 crore as of December-end.

In the past, banks have converted bad debt into equity in a few cases like Kingfisher, but the conversion has been mostly difficult due to regulatory and legal issues.

Acquisition of equity shares by the consortium of banks, financial institutions and other secured lenders pursuant to conversion of their debt as part of the Strategic Debt Restructuring Scheme will be in accordance with the guidelines specified by the Reserve Bank, Sebi said.