What changed
RBI consolidated and updated the 2010 guidelines on change or takeover of borrower management by SC/RCs as of June 30, 2011. The guidelines formalize the process under Section 9(a) of SARFAESI Act, requiring SC/RCs to follow fair and transparent procedures. They specify eligibility conditions, including a minimum dues threshold of 25% of total assets and creditor consent requirements.
What it means for you
For banks and lenders, these guidelines provide a structured framework for SC/RCs to intervene in borrower management to recover dues, ensuring actions are not arbitrary. The 25% asset threshold and 75% creditor consent rule protect borrower interests and prevent unilateral actions. Lenders must coordinate with SC/RCs and other creditors to meet these conditions before any management change.
What you must do
- Verify that dues from the borrower are at least 25% of total assets before SC/RC initiates management change.
- Ensure that if multiple secured creditors are involved, at least 75% of outstanding security receipts consent to the action.
- Document compliance with SARFAESI Act Section 15 procedures for takeover of management.
- Restore management to borrower once dues are fully realized as per Section 15(4).
Who it affects
Securitisation Companies (SCs), Reconstruction Companies (RCs), Borrowers with secured loans, Secured creditors including banks and financial institutions
What is the minimum dues threshold for SC/RC to change management?
The dues must be at least 25% of the borrower's total assets as disclosed in their financial statements.
What happens if multiple creditors are involved?
Secured creditors holding not less than 75% of the outstanding security receipts must agree to the management change or takeover.
When must management be restored to the borrower?
Once the SC/RC realizes its dues in full, management must be restored to the borrower as per Section 15(4) of the SARFAESI Act.