Sebi relaxes debt-equity conversion norms for banks

The Securities and Exchange Board of India (Sebi) on Sunday relaxed its norms for banks for conversion of their debt into equity in companies that are in distress and unable to repay funds, providing a major fillip to lenders struggling with bad loans.

"Banks are facing a serious problem of non performing loans. There is urgent need for conversion of debt into equity, but the existing Sebi regulations with regard to pricing come in their way... So, we have eased the norms while providing certain safeguards, including by asking banks to acquire at least 51 per cent of equity," Sebi Chairman UK Sinha told reporters after the board meeting.

Under the relaxed norms, which were approved by Sebi's Board, banks would be allowed to convert their debt into equity in a listed borrower entity that is in distress without applicability of the markets regulator's pricing formula in such conversions.

Sebi's Board also met Arun Jaitley earlier on Sunday morning in a customary post-Budget address wherein the Finance Minister reviewed the state of economy and the markets and discussed capacity building and other infrastructure needs for merger of commodities regulator Forward Markets Commission (FMC) with the capital markets regulator.

"This is also the time to review... issues which are confronting Sebi, their functioning vis-a-vis new proposals in the Budget and how we see the roadmap in coming months," Jaitley said.

Jaitley was accompanied by Minister of State for Finance Jayant Sinha during his interaction with Sebi's Board.

Besides Chairman Sinha, the 8-member Sebi board includes three Whole Time Members, an independent director and nominees of Finance Ministry, Corporate Affairs Ministry and Reserve Bank of India (RBI).

After addressing the board of the market watchdog, the Finance Minister said he also discussed various issues confronting Sebi, its functioning vis-a-vis new proposals in the Budget and the roadmap ahead.

When asked about the merger of FMC with Sebi, which was proposed by him in the Budget for 2015-16, Jaitley said that was also one of the issues discussed.

"They (Sebi) talked about capacity building at Sebi, both in terms of ability to acquaint with the subjects and other infrastructure requirements," Jaitley said.