Mumbai: State Bank of India (SBI) has decided to seek additional security in the form of promoter pledges for listed companies and personal guarantee for unlisted companies in order to restructure debt under RBI’s window.
India’s largest lender on Monday disclosed this as part of responses to a set of frequently asked questions (FAQs) on its website and is applicable only to corporate borrowers. To be sure, these are the same set of conditions required earlier as well when the corporate debt restructuring (CDR) cell was in force.
The CDR cell also ensured that such guarantees were given by the promoter in case of restructuring but the problem was the enforcement later, said a banker who was part of the cell. Bankers believe that enforcement of guarantee from defaulting promoters is the key here and as recent cases have revealed, legal hurdles need to be overcome.
Among the documents required along with a debt recast application are board resolution stating that the company’s operations are under stress on account of covid-19. That apart, goods and services tax (GST) returns from April 2020 till the latest available month and also for the corresponding period of the previous year need to be submitted. The bank said that in case of listed companies, the latest financials filed with stock exchanges also have to be submitted along with cash budget and projected financials for the period of loan.
Several auto parts makers, manufacturing companies and real estate developers have aleady approached financial advisory firms and lawyers to project cash flows to meet financial parameters specified by the Reserve Bank of India (RBI).
SBI has specified that for loans of ₹1,500 crore and above from the banking system, last date of application is 15 November; for others, it is 30 November. The central bank has allowed time till 31 December for lenders and borrowers to agree upon a resolution plan and another six months to implement it.
In the case of term loans, additional moratorium of up to two years for repayment of principal in instalments can be provided, SBI said. The tenor of the loan can be extended by a maximum of two years and an interest moratorium up to a maximum of six months can be provided, it added.
However, for working capital loans, apart from the interest moratorium of six months, the borrower can also get a need-based additional funding, repayable in not more than five years. The bank has set the minimum promoter’s contribution in the form of capital infusion at 10- 15% of the additional loans sanctioned.
On 7 September, the KV Kamath committee prescribed that banks must ensure that restructured loans meet specific financial parameters by March 2022. In its report, the five-member panel led by former ICICI Bank chief executive Kamath, identified five financial parameters to gauge the health of sectors facing difficulties. These include total outside liabilities to adjusted tangible networth, total debt to earnings before interest, taxes, depreciation, and amortization (Ebitda), debt service coverage ratio (DSCR), current ratio and average debt service coverage ratio (ADSCR).