Indian regulator eases rules for banks to convert bad loans to equity

Indian banks will be able to convert distressed loans owed by listed companies into equity stakes, the capital market regulator said on Sunday, in a move that will allow lenders to reduce bad loans weighing on their balance sheets. India's bad loans have risen sharply as its economic growth has been weak for two years.
Loans classified by the central bank as bad or restructured account for more than a tenth of total lending by Indian banks. India Ratings and Research, part of Fitch, estimates impaired loans could hit 13 percent of total lending by March 2016.
The central bank and lenders had been lobbying the Securities and Exchange Board of India (SEBI) to ease the rules on allotment of equity stakes to banks to facilitate debt-to-equity conversions.
The guidelines announced on Sunday would allow banks to convert distressed debt into equity at a mutually agreed valuation based on that the regulator described as a "fair-pricing formula", moving away from current rules that require conversions to be based on market prices.
A SEBI official said the regulator would publish details of the formula at a later date.
The regulator said conversions would be exempt from takeover rules, allowing banks to convert debt to equity without having to make mandatory tender offers to minority shareholders.
The board also approved draft rules that would make it easier for municipal governments to sell bonds to fund construction of roads, bridges and hospitals.
The regulator announced stricter corporate disclosure requirements that require listed companies to announce material information to shareholders within 24 hours after an event and make decisions by their boards public within 30 minutes.
The new requirements come after SEBI has voiced concerns that Indian companies do not provide proper disclosure. Last year the regulator empowered stock exchanges to beef up their surveillance mechanisms to ensure companies make timely disclosures.
The regulator also removed restrictions on asset managers who run specialised funds for offshore investors, which will allow domestic mutual fund companies to seek more foreign clients.