The Reserve Bank of India ("RBI") had issued various Guidelines with the objective of stimulating the stressed assets in the economy. Such Guidelines are relating to Strategic Debt Restructuring (SDR) Mechanism, Framework to Revitalize the Distressed Assets in the Economy, Restructuring of Advances by Banks, Flexible structuring of Long Term Project Loans and Guidelines on Sale of Financial Assets to Securitization Companies (SC)/Reconstruction Companies (RC). Further, the RBI vide various circulars/notifications issued from time to time has decided that such Guidelines, to the extent applicable, would also be applicable to all Non-Banking Financial Companies ("NBFCs") as well. Continuing with this move, recently, RBI, on review of Framework for Revitalizing Distressed Assets in the Economy and SDR Mechanism, issued following notifications on May 26, 2016:

  1. Notification No. DNBR. 041/CGM(CDS)-2016 dated May 26, 2016 amending the Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015;
  2. Notification No.DNBR.042/CGM(CDS)-2016 dated May 26, 2016 amending the Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015; and
  3. Notification No.DNBR.043/CGM(CDS)-2016 dated May 26, 2016 amending the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 are enclosed.

By issuance of above stated notifications, the following changes in general conditions under the respective Directions (applicable to NBFCs) would be applicable in all cases of restructuring:

  1. All restructuring packages under CDR/ JLF/ Consortium/ MBA arrangement should be implemented within 90 days from the date of approval. Other restructuring packages should be implemented within 120 days from the date of receipt of application by the NBFC.
  2. Promoters must bring additional funds in all cases of restructuring. Additional funds brought by promoters should be a minimum of 20% of NBFCs' sacrifice or 2% of the restructured debt, whichever is higher. The promoters' contribution should invariably be brought upfront while extending the restructuring benefits to the borrowers. Further, the Promoter's contribution need not necessarily be brought in cash and the same can be brought in the form of conversion of unsecured loan into equity;
  3. NBFCs should determine a reasonable time period during which the account is likely to become viable, based on the cash flow and the Techno Economic Viability ("TEV") study.
  4. NBFCs should be satisfied that the post restructuring repayment period is reasonable and commensurate with the estimated cash flows and required Debt-Service Coverage Ratio ("DSCR") in the account as per their policy approved by their respective Board.
  5. Each NBFC should clearly document its own due diligence done in assessing the TEV and the viability of the assumptions underlying the restructured repayment terms.

It has been decided that in case of replacement of existing promoters by new promoters due to fraud/ malfeasance by previous promoters, NBFCs and JLF may take a view on restructuring of such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters/ management. In this regard, the NBFCs are advised to follow the "Prudential Norms on Change in Ownership of Borrowing Entities (Outside Strategic Debt Restructuring) Scheme" issued by RBI on September 24, 2015 and formulate their own policy and requirements as approved by their Board."

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