What changed
RBI issued a notification dated July 2, 2012, reproducing the April 21, 2010 guidelines as updated as on June 30, 2012, to have all current instructions at one place.
What it means for you
SCs/RCs must ensure fairness and transparency when taking over management. The 25% asset threshold and 75% creditor consent rule remain key safeguards. Banks dealing with SCs/RCs should verify compliance with these conditions before any management change action.
What you must do
- Ensure SCs/RCs meet the 25% of total assets owned by the borrower threshold before management change
- Verify that secured creditors (including SC/RC) holding not less than 75% of outstanding security receipts consent when multiple secured creditors are involved
- Confirm SCs/RCs follow SARFAESI Section 15 procedures for takeover
- Monitor that management is restored to borrower once dues are fully realized
Who it affects
Securitisation Companies (SCs), Reconstruction Companies (RCs), Borrowers with secured loans, Secured creditors including banks
What is the minimum dues threshold for SCs/RCs to change management?
The dues must be at least 25% of the total assets owned by the borrower as disclosed in its latest audited balance sheet immediately preceding the date of action.
What happens when multiple secured creditors are involved?
Secured creditors (including SC/RC) holding not less than 75% of the outstanding security receipts must agree to the management change action.
When must management be restored to the borrower?
Once the SC/RC realizes its dues in full, management must be restored to the borrower as provided in Section 15(4) of the SARFAESI Act.