Debt recast: RBI likely to relax voting threshold of lenders to 90%

The Reserve Bank of India (RBI) is likely to relax the voting threshold of lenders — for any corporate debt restructuring — to 90 per cent, as compared to the earlier 100 per cent under the February 12, 2018 circular.

The lowering of the voting threshold is expected to help several firms avoid bankruptcy, and aid banks in recovering dues faster. According to a person close to the development, the proposal was made by the Indian Banks’ Association (IBA) to the RBI, after the Supreme Court struck down the February 12 circular last month.

“The RBI is expected to accept the IBA’s proposal,” said the person. In the last two years, corporate debt recast has come to a virtual halt with banks — including those with lowest voting share in a consortium — managing to stall the entire process in the meetings by voting against the proposal, because of the 100 per cent requirement.   

India Inc CFOs want the RBI to reduce the threshold further to 66 per cent, as even 90 per cent may not help them much. “The Insolvency and Bankruptcy Code (IBC) requires 66 per cent consent for debt resolution and even during earlier circulars, the RBI sought only 66 per cent voting for corporate debt restructuring. With 90 per cent mandatory voting, chances of debt resolution are still slim,” said the person. 

The 100 per cent voting clause has already sent several firms to the National Company Law Tribunal (NCLT) for debt resolution, under the IBC. 

Another person in the know said that in one case, a bank with just 3 per cent voting share stalled the entire process and sent an operating company for bankruptcy — resulting in thousands of job losses. In the case of Reliance Communications, too, banks were not unanimous in giving a loan recast package and the company was referred to the NCLT. 

One idea floated by banks is to buy out loans of dissenting bankers. The 90 per cent threshold could hit power and infra firms, which are waiting for the RBI’s new circular. On April 9 this year, the Supreme Court had struck down the RBI’s February 12 circular, which had ended all debt restructuring and shut the Joint Lenders’ Forum (JLF) mechanism. The JLF helped clear debt recast proposals as it had the mandate from banks to take expeditious decisions.

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