Restructuring of Bank Advances

RBI circular DBOD. No. BP. BC.21/21.04.048/2010-11 dated 01 July 2010* on "Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances" permits banks to continue "standard asset" classification for a restructured loan, provided it satisfies prescribed criteria. One of the criteria is that "promoters" sacrifice and additional funds brought by them should be a minimum of 15% of the banks' sacrifice." Also, the additional funds required to be brought in by the promoter should be brought up front and not phased over time. Considering practical difficulties in compliance with this requirement, RBI has decided as below:
The promoter's sacrifice and additional funds required to be brought in by them should generally be brought in upfront. However, if banks are convinced that the promoters face genuine difficulty in bringing their share immediately, they can be allowed to bring in 50% of their sacrifice within one year.
If the promoters fail to bring in their balance share of sacrifice within one year, the asset classification benefits will cease to accrue and the banks will have to change the asset classification, based on generic criteria.
RBI has also clarified that contribution by the promoter need not necessarily be brought in cash and can be brought in the form of de-rating of equity, conversion of unsecured loan into equity and interest free loans.