What changed
RBI consolidated and updated the 2010 guidelines on change or takeover of borrower management by SCs/RCs as of June 30, 2013. The notification reproduces the existing instructions in one place for clarity. No new substantive changes were introduced beyond the consolidation.
What it means for you
Banks and lenders dealing with SCs/RCs must ensure that any management takeover action meets the 25% asset threshold and, for multiple creditors, requires 75% consent. This reinforces checks and balances to prevent arbitrary actions. Lenders should verify compliance before supporting such moves.
What you must do
- Verify that the SC/RC's dues from the borrower are at least 25% of the borrower's total assets (as per latest audited balance sheet) before supporting management change.
- Ensure that when multiple secured creditors are involved, secured creditors holding not less than 75% of the outstanding security receipts consent to the action.
- Review internal processes to align with SARFAESI Act Section 9(a) for guidelines and Section 15 for management takeover and restoration.
- Update loan documentation to reference these guidelines for clarity on SC/RC powers.
Who it affects
Securitisation Companies (SCs), Reconstruction Companies (RCs), Banks and financial institutions that are secured creditors, Borrowers with secured loans managed by SCs/RCs
What is the minimum dues threshold for an SC/RC to take over management?
The dues must be at least 25% of the borrower's total assets as disclosed in the financial statements.
What happens if multiple secured creditors are involved?
Secured creditors holding not less than 75% of the outstanding security receipts must agree to the management change or takeover.
When must management be restored to the borrower?
Once the SC/RC realizes its dues in full, management must be restored as per Section 15(4) of the SARFAESI Act.