Law changes to help revive stressed firms

Tags: News

Give asset reconstruction firms more options

After the amendment to the SARFESI Act and the debt recovery tribunal in the Lok Sabha on Tuesday it will now be easier for banks and financial institutions to help revive companies and recoup their advances as no opposing bank or party can file a caveat in the debt recovery tribunal to obtain a stay unless both parties to the case are heard. Under the present DRT regulations it is possible for a bank or a borrower, which is opposed to the restructuring to file a caveat in the DRT and stall the revival or recovery process.

The asset reconstruction companies can also convert their debt into equity during a restructuring so that the cost will come down for the company and the ARC gains by buying into the equity of the company. Until now it was not allowed to convert into equity.

P Rudran, MD and CEO, Arcil said, “By allowing the banks and FIs to file caveats and to be heard in DRTs before granting any stay, will ensure that the process of law is not misused by unscrupulous borrowers to delay the settlements and payment of dues. Similarly, allowing 15 days (instead of 7 days) to reply to the borrower’s objective under section 17 of SARFAESI act is also a good change so that the lenders can meaningfully analyse the issues raised by the borrowers.”

The amendments are to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFESI) Act of 2002, and the Recovery of Debts Due to Banks and Financial Institutions Act of 1993.

M Narendra, CMD, Indian overseas banks said, “No one can get a stay order from the tribunal unless all the parties to the case are heard which is a big step forward for resolution of cases. Allowing banks to acquire immovable properties towards the settlement of the dues is another big step, which will help banks buy back the property that is unsold in the auction. Now we had to hold it as non-current asset in our book for nearly seven years, now it can be acquired and will form a part of our fixed assets. These amendments will help in speedier resolution of cases.”

The amended law will allow the asset reconstruction firms to convert fully or in part their loan to a stressed entity into equity. This is specially useful in the initial stages when the company is under stress and the option of converting debt into equity will reduce the interest cost for the company in the initial stages where costing is an important factor.

According to rating agency Icra report the gross non-performing assets (NPAs) likely to cross Rs 2,00,000 crore and reach 3.6-3.8 per cent of gross advances as on March 31, 2013, up from 2.8 per cent as on March 31. Standard restructured advances could move up to Rs 3,70,000-4,20,000 crore by March 31, 2013 as against Rs 2,30,000 crore as on March 31.

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