RBI allows banks to reclassify some stressed loans

The Reserve Bank of India (RBI) said it would allow banks to convert the status of their "stressed" loans to a company into "standard" ones if the entity is sold to a new major stakeholder, although certain conditions would apply.

The change is important, given that in the country a loan deemed as "stressed" must follow strict recovery rules, while "standard" ones offer much more flexibility in how companies repay their debt.

Among the conditions that must be met, the RBI said the new so-called promoter, or major stakeholder, must buy at least 51 per cent of the paid-up equity capital of the company.

The new promoter can also not have any ties to the existing stakeholder.

The banking sector, dominated by more than two-dozen state-run lenders, has been hobbled by its highest bad-loan ratio in a decade as slower economic expansion hurt companies' abilities to service debt.

(Reuters)