Mumbai: The Reserve Bank of India (RBI) on Thursday said banks can treat loans to stressed companies that have undergone ownership changes as standard loans, provided the stress was due to operational or managerial inefficiencies.

Earlier, the central bank had given banks the power to take control of companies under the strategic debt restructuring (SDR) rules. After taking control, banks were to scout for professional managers or look for new promoters for the stressed firms. Banks were allowed to reclassify the loans given to these firms as standard after invoking SDR rules.

Now, the same advantage will be available to companies where banks push for a management change outside the SDR framework.

“In order to further enhance banks’ ability to bring in a change in ownership of borrowing entities which are under stress primarily due to operational/managerial inefficiencies despite substantial sacrifices made by the lending banks, it has been decided to allow banks to upgrade the credit facilities extended to borrowing entities whose ownership has been changed outside SDR, to ‘Standard’ category upon such change in ownership," said the RBI in a notification on Thursday.

This will, however, be subject to certain conditions. One of them is that while the classification of the account will change from non-performing to standard, provisions made against the account cannot be reversed.

The provisions can only be reversed once all the outstanding loan and facilities of the borrowing entities perform satisfactorily, said the RBI. If a bank completely exits the company, the provisions can be written back.

The RBI also specified that the new promoter should not be related to the existing promoters and the promoter should have acquired at least 51% of the borrower company.

“At the time of takeover of the borrowing entity by a ‘new promoter’, banks may refinance the existing debt of the borrowing entities, considering the changed risk profile, without treating the exercise as ‘restructuring’ subject to banks making provisions for any diminution in fair value of the existing debt on account of the refinance," the notification said.

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