Another gateway provided to the infrastructure sector

The Reserve Bank of India (RBI) provided further impetus to the government’s drive to strengthen the infrastructure sector by further relaxing the norms on restructuring (for infrastructure companies) by allowing up to two years extension of the date of commencement of commercial operations (DCCO) and consequent alteration of the repayment schedules without reclassification of the account.

This move comes close on the heels of the Securities and Exchange Board of India’s relaxation of the pricing norms for conversion of outstanding debt to equity of listed companies. The relaxation aims to facilitate sale of a distressed asset and aid in revival of companies. Additionally, from a lenders’ perspective, extension of DCCO without reclassification would mean that banks avoid provisioning requirements (which would otherwise be applicable) and the stress in the account would not be reflected in their books.

Inadequacies of promoters

One of the conditions that must be satisfied to take advantage of the RBI’s relaxation is that the delay in implementing the project is due to inadequacies of the existing promoters. If the intent of the relaxation is to ensure continuing project implementation without undue and escalatory burden (such as on account of provisioning) on banks and borrower, facilitation of the sale of the distressed asset and recognition of change in management, the notification may provide a gateway for revival in cases of inadequacies of the existing promoters.

Khaitan Sud & Partners is a fast growing law firm providing specialist legal services to both domestic and international clients. Aiswarja Mohanty is an associate at the firm.