Sebi to help banks tackle bad loans
MARKET REGULATOR TO RELAX LOCK-IN, ELIGIBILITY NORMS FOR PREFERENTIAL SHARE ALLOTMENTS ANNOUNCEMENT LIKELY AT SEBI’S APRIL 26 BOARD MEET
Banks and infrastructure finance institutions will soon receive a helping hand from the Securities and Exchange Board of India (Sebi) in their fight against bad loans.
Going ahead, lenders may not be required to observe the six-month lock-in for shares acquired through preferential allotment. Also, the condition that renders a lender ineligible, if it has bought shares of the company in the previous six months, is also likely to be waived.
The move will ensure an easier and faster liquidation of assets acquired by banks through corporate debt restructuring or any other type of restructuring. Often, the restructuring exercise involves converting debt into equity or issue of fresh equity to lenders, which is done through preferential issues. Under current Sebi rules, the entire shareholding prior to an allotment is locked in for a period of six months.
Sources said Sebi, at its board meeting to be held on April 26, was planning amendments to the Issue of Capital and Disclosure Requirements (ICDR) regulations to relax the lock-in clause and eligibility norms for preferential share allotments involving scheduled banks and financial institutions.
“Many banks have to frequently sell shares of stressed companies. This makes them ineligible for future allotment of shares for a period of six months. The relaxations planned are designed to help banks in speedy recovery from a listed borrower,” said a regulatory official.
The move comes at a time when banks, particularly the state-owned ones, are having a tough time battling bad loans. According to estimates, banks have identified stressed assets worth ~6 lakh crore, which are currently undergoing restructuring through various programmes. A large portion of these stressed assets belong to listed companies in the power, infrastructure and steel industries.
“If approved by Sebi, it is a good measure as this will allow preferential allotment to banks, which may have sold the shares of the issuer company within 180 days prior to the relevant date and allow banks to liquidate all of their shareholding in a company immediately after any preferential allotment. This measure will help banks in finding new buyers for stressed assets in which they (banks) have acquired equity,” said Sudhir Bassi, partner, Khaitan & Co.
This is not the first time the market regulator is helping banks struggling with bad loans. In 2015, Sebi had provided relaxation to banks in open offers to allow them to convert debt into equity in a listed borrower.
Experts said the lock-in and eligibility norms were checks to avoid manipulation by promoters but banks could be provided exemption, currently permitted for institutional investors like mutual funds and insurance companies.
“The concept of locking the prepreferential shareholding was introduced by Sebi to curb the practice of contratrading by promoters to take advantage of the price arbitrage between the preferential issue price and the market price,” said Yogesh Chande, partner, Shardul Amarchand Mangaldas.