Debt-laden companies may face tougher loan terms
Reserve Bank of India deputy governor SS Mundra on Wednesday said banks may demand increased equity from the companies that are highly leveraged, before offering fresh loans to them.business Updated: Dec 11, 2014 01:27 IST
Reserve Bank of India deputy governor SS Mundra on Wednesday said banks may demand increased equity from the companies that are highly leveraged, before offering fresh loans to them. This is in line with RBI governor Raghuram Rajan’s recent tough stance on the companies that had borrowed heavily and were defaulting on interest payments.
Speaking to reporters, Mundra said promoters need to bring in equity to correct the debt-equity mismatch.
“High leverage doesn’t mean the company cannot be financed if there is a need. For further financing, the bank may demand to bring higher equity to correct the leverage,” he added.
Last month while delivering the third Verghese Kurien lecture at the Institute of Rural Development at Anand, Gujarat, Rajan came down heavily on promoters of the companies who didn’t have any accountability while borrowing heavily from banks, which left lenders vulnerable to risks.
Mundra’s statement also signifies that the RBI is willing to consider norms that will enable banks to decide on debt-equity ratio individually for the companies, instead of a one-size-fits-all policy.
On interest rates, which the RBI left unchanged at its recent monetary policy meeting last week, Mundra said that a rate cut would be possible only if inflation and inflationary pressures continue to wane.
In November, the government said consumer price inflation in October dropped to 5.52%, a record low and much below the RBI target of 6% for January 2016. The inflation rate for November is scheduled to be announced on December 12.
Speaking on proposed norms for small and payments banks, Mundra said the central bank is likely to grant licences on small finance and payments banks by April, 2015. The central bank had released final guidelines for licensing of these banks last month.