What changed
Previously, SC/RCs could only use QIB funds to acquire financial assets, not for restructuring. Now, based on KAG recommendations and the January 2014 distressed asset framework, RBI permits using up to 25% of scheme funds from QIBs for restructuring acquired assets, provided the SC/RC holds over Rs 500 crore in acquired assets.
What it means for you
This gives SC/RCs more flexibility to actively resolve stressed assets by using investor funds for restructuring, not just acquisition. Banks dealing with NPAs may see faster resolution as SC/RCs can now deploy capital more effectively. The 25% cap and disclosure requirements ensure transparency and prevent misuse.
What you must do
- Review your SC/RC's asset portfolio to check if acquired assets exceed Rs 500 crore threshold.
- If eligible, draft a board-approved policy for utilizing QIB funds for restructuring within the 25% limit.
- Ensure upfront disclosure in the scheme document of the portion earmarked for restructuring.
- Maintain separate accounting for funds used for restructuring versus acquisition.
Who it affects
All registered Securitisation Companies and Reconstruction Companies, Qualified Institutional Buyers investing in SC/RC schemes, Banks and lenders with stressed assets being resolved by SC/RCs
Can SC/RCs use more than 25% of QIB funds for restructuring?
No, the circular clearly caps the utilization at 25% of the funds raised under a scheme from QIBs.
Does this apply to all SC/RCs regardless of size?
No, only SC/RCs with acquired assets exceeding Rs 500 crore are eligible to float such a scheme.
What disclosure is required for the restructuring portion?
The scheme must upfront disclose the extent of funds to be used for restructuring, and those funds must be separately accounted for.