1. IBA to meet RBI on new stressed assets resolution scheme

IBA to meet RBI on new stressed assets resolution scheme

Bankers are wondering whether it would be possible to categorise a certain portion of a company’s debt as unsustainable if they have restructured it under the 5/25 scheme

By: | Mumbai | Updated: June 28, 2016 7:41 AM
According to RBI guidelines, only that amount of debt can be deemed sustainable that can be fully serviced even if a company's future cash flows remain at current levels.(Reuters)

According to RBI guidelines, only that amount of debt can be deemed sustainable that can be fully serviced even if a company’s future cash flows remain at current levels.(Reuters)

The Indian Banks’ Association (IBA) has decided to make a presentation to the Reserve Bank of India (RBI) to amend the Scheme for Sustainable Structuring of Stressed Assets (S4A), sources told FE. This follows an extensive meeting last week in which bankers are learnt to have discussed the problems they foresee in implementing the scheme in its present form. “Unless amended, it will be difficult for us to justify invoking S4A in several accounts that are actually perfect-fits for the scheme,” one of the sources mentioned above, a senior banker with a public sector bank (PSB), said.

Bankers are wondering whether it would be possible to categorise a certain portion of a company’s debt as unsustainable if they have restructured it under the 5/25 scheme a few month earlier. The Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries, popularly known as the 5/25 scheme, which the central bank had introduced in 2014, was aimed at helping borrowers since it allows banks to extend the tenor of a loan to infrastructure projects to reduce the repayment burden on companies.

“It won’t help the credibility of a bank if it terms certain part of the debt of a company as unsustainable having accepted it as sustainable by extending its tenor as per the 5/25 scheme just a few months back,” bankers say.

Another banker present in the IBA meeting said the fact that most of the stressed accounts in the most distressed sector of the economy — iron & steel — won’t qualify for S4A also raises question marks on how far it can help banks deal with stress. “Current cash flows of several steel companies in India are not enough to cater to even a third of their debt, while S4A can only be implemented if at least 50% of the existing debt is serviceable and hence can be termed sustainable using existing cash flows,” he said. According to RBI guidelines, only that amount of debt can be deemed sustainable that can be fully serviced even if a company’s future cash flows remain at current levels.

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