RBI operationalizes Amendments to SARFAESI Act

Pursuant to the amendments made to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) last year and the recommendations of the ‘Key Advisory Group’ constituted by the Government of India (“KAG”), RBI has now amended the Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003 (“Guidelines”). The important amendments to the Guidelines as follows:

  • Conversion of ‘Debt’ into ‘Equity’: Securitisation Companies (“SCs”) and Reconstruction Companies (“RCs”) are permitted to convert a portion of their debt into equity shares of the borrower company upto a limit of 26% (Twenty Six Percent) of the post conversion equity share capital of such borrower company.
  • Consent for Enforcement of Security Interest: SCs and RCs may now enforce its security interest after obtaining the consent of 60% (Sixty Percent) of the secured creditors of the borrower company by value as against the earlier requirement of 75% (Seventy Five Percent).
  • Acquisition of debt: SCs and RCs may acquire debt from other SCs and RCs provided:
    • The acquiring SC or RC must hold less than 60% (Sixty Percent) of the debt due from the borrower prior to acquisition, which should exceed 60% (Sixty Percent) pursuant to such acquisition.
    • The transaction shall be settled on cash basis.
    • The selling SC or RC is required to utilize the sale proceeds of such sale to redeem the underlying security receipts issued by such SC or RC.
    • The acquisition of such debt should not result in, or lead to extending the period of realization of the underlying assets beyond 8 (Eight) years from the date of such acquisition.