Wilful defaulters and defaulting companies can no more withhold loan repayments, with the release of the Reserve Bank of India’s new guidelines under the ‘Strategic Debt Restructuring’ scheme.
The scheme intends to target all those who consciously deceive creditors and doesn’t repay loans, including companies which do not repay despite being able to. However, the defaulting companies failing to repay the loan for genuine reasons are exempted under the scheme.
Must To Know Things About The Strategic Debt Restructuring Scheme
- Under the ‘Strategic Debt Restructuring’ Scheme, the banks can take over the operations of the companies struggling to repay loans on a regular basis.
- The ‘Joint Lenders Forum’ (JLF) is formed by the banks.
- The JLF group can convert the outstanding loan amount into company’s equity shares. Thus, banks own a part of the company.
- The banks can then recover the loan amount by selling the shares of the companies in the market.
How The Scheme Works?
It begins with loan restructuring. Firstly, the bank relaxes terms and conditions in case the customer approaches showing its poor financial conditions. Thus, the company or the client gets more space and ease to repay the loan.
If the client’s financial performance still doesn’t improve over a period of time, the banks forms group. The group proceeds to convert the debt into equity shares. This means, the banks will own the company. This has to be finished within a month’s time of reviewing the company’s loan accounts.
- The transfer of ownership would be done within 90 days.
- The ownership transfer would begin only after at least 60% of lenders give their approval.
- They must also owe at least 75% of the total loans.
- The lenders group will own at least 51% of the total stocks of the company.
Once the banks own the company, they are responsible for managing the company. The lenders can take assistance form the professional management for running the company. However, this arrangement cannot last long as the lenders have to sell their shares soon after the loan gets recovered.
While exiting, the JLF has to transfer the ownership to a new promoter who has no links with the old management of the company.
In conclusion, if the duration of non-payment of the loan amount crosses 90 days, then the loan would be termed a Non-Performing Asset (NPA) or bad loans. Whether it is an organization or an individual, it is important avoid bad loans to secure the future. Take professional advice to manage finances.
