What changed
RBI formalized guidelines under Section 9(a) of SARFAESI Act for SC/RCs to change or take over borrower management. The guidelines set eligibility conditions: dues must be at least 25% of borrower's total assets, and if multiple creditors, 75% of outstanding security receipts must consent. They also require compliance with Section 15 of SARFAESI Act for takeover process and restoration of management upon full dues realization.
What it means for you
Banks and lenders must ensure that when SC/RCs act on their behalf, the 25% asset threshold and 75% creditor consent conditions are met. This adds a layer of protection for borrowers against arbitrary management changes. Lenders should coordinate with SC/RCs to verify these thresholds before any action, as non-compliance could invalidate the takeover.
What you must do
- Verify that the borrower's dues to the SC/RC are at least 25% of total assets before any management change or takeover.
- If multiple secured creditors are involved, ensure that creditors holding at least 75% of outstanding security receipts consent to the action.
- Ensure SC/RCs follow Section 15 of SARFAESI Act for takeover process and restore management to borrower upon full dues recovery.
- Maintain documentation of asset valuation and creditor consent to demonstrate compliance with these guidelines.
Who it affects
Securitisation Companies (SCs), Reconstruction Companies (RCs), Banks and financial institutions that are secured creditors, Borrowers with dues to SC/RCs
What is the minimum dues threshold for an SC/RC to change or take over management?
The dues must be at least 25% of the borrower's total assets.
What happens if there are multiple secured creditors?
Creditors holding at least 75% of the outstanding security receipts must agree to the management change or takeover.
When must the SC/RC restore management to the borrower?
Upon full realization of its dues from the borrower, as per Section 15(4) of the SARFAESI Act.