The decision of market regulator Securities and Exchange Board of India (Sebi) to allow lenders to convert part or all of their debt into equity in case of defaults will help banks reduce their bad assets, SBI MD P Pradeep Kumar said.
The decision of market regulator Securities and Exchange Board of India (Sebi) to allow lenders to convert part or all of their debt into equity in case of defaults will help banks reduce their bad assets, SBI MD P Pradeep Kumar told CNBC-TV18's Latha Venkatesh and Sonia Shenoy.
"We had been requesting this for long," he said.
According to the decision taken at a Sebi board meeting yesterday, banks can now swap their bad debts for equity without adhering to strict guidelines that are usually outlined takeover, such as pricing equity at historical market price or tendering an open offer for minority shareholders.
The regulator said it would later publish an equity pricing formula for such conversions based upon face value or fair value instead of historical market price.
Below is the transcript of the interview on CNBC-TV18.
Latha: What does this mean for banks? Was this the one reason why you were not able to convert debt into equity and take over bad assets?
A: We have been requesting Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) for this enablement. The Sebi takeover code had a pricing for the conversion of our debts or interest into equity for listed companies as the higher of average of the last six months or the last fortnight. This we thought was not the right conversion price for debt or interest for stressed companies.
So, we had been requesting the RBI to intervene with Sebi for changing this formula which we thought was in the favour of the minority shareholders but not in the interest of the financial institutions.
We will have to see the fine print, what are all the details for the conversion but that is what I have seen is that it will be either at face value, at fair value. This will enable banks to convert in a stressed company to convert their debt or interest into equity.
SBI stock price
On March 23, 2015, at 09:20 hrs State Bank of India was quoting at Rs 278.35, up Rs 0.00, or 0.00 percent. The 52-week high of the share was Rs 335.90 and the 52-week low was Rs 167.35.
The company's trailing 12-month (TTM) EPS was at Rs 16.61 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 16.76. The latest book value of the company is Rs 158.43 per share. At current value, the price-to-book value of the company is 1.76.
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