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Bad loan rejig: RBI says first loss must be borne by promoters

Mumbai: In a major respite to banks who are facing NPA problems, the Reserve Bank today said restructuring of a bad loan should be done in such a manner that shareholders, including promoters, bear the
India TV News Desk January 30, 2014 22:17 IST
India TV News Desk
Mumbai: In a major respite to banks who are facing NPA problems, the Reserve Bank today said restructuring of a bad loan should be done in such a manner that shareholders, including promoters, bear the first loss and not the lenders.

“The general principle of restructuring should be that the shareholders bear the first loss rather than the debt holders,” the RBI said in the ‘Framework for Revitalising Distressed Assets', released this evening.

In the new guidelines, which will be effective from April 1, the RBI has asked lenders to form a committee called ‘joint lenders' forum (JLF) to formulate a plan for early resolution of the stress in the account.

JLF or corporate debt restructuring (CDR) cell, while restructuring an account, should consider the possibility of transferring equity of the company by promoters to lenders to compensate for their sacrifices.