Shares of PSBs, leveraged companies surge on revised loan recast norms from RBI.

MUMBAI: Shares of public sector banks and debt-laden companies rallied sharply in an otherwise weak market on Tuesday after the Reserve Bank gave flexibility to banks to bail out companies with high debt. 

Under the scheme, banks can split the loans of struggling firms into sustainable and unsustainable debt. Sustainable debt refers to loans that can be serviced with a firm's existing cash flow. Banks have been given the option of converting the unsustainable debt, which cannot be serviced with cash flow, into equity. Fund managers termed the move positive for PSU banks as they have significant exposure to corporates.

For debt-ridden companies, the scheme will spell relief in terms of ease of loan repayment period. The scheme will cover operational projects with loans of Rs 500 crore. "The revised norms are in line with the measures being announced by RBI and the government to reduce the NPA problem. The new guidelines are more beneficial for resolution of those cases where a lot of debt has already been provided for," said S Naren, executive director, ICICI Prudential AMC.
Courtesy Economic Times