Reserve Bank of India (RBI) deputy governor SS Mundra on Thursday said at meetings with the finance ministry, he suggested a host of changes in the current resolution measures including lowering of the minimum sustainable debt from 50% under the Scheme for Sustainable Structuring of Stressed Assets (S4A). According to Mundra, who was speaking to a business news channel, while an institutional view has not emerged, his perception is that if the sustainable debt – the debt that will be regularly serviced after S4A recast – is less than half of the total debt, then banks should decide on the course of action.
“I would believe that if the cash flow projections are not unrealistic and companies have passed the test, it is for the lenders to go ahead with the prescription,” Mundra said. He said banks argue that sustainability should be assessed on the basis of a much distant future rather than an immediate future. “If you say that it is a much distant future and the viability would emerge some two years from now, it means that cash flow would also strengthen over time and repayments should also be recalibrated to the cash flow,” Mundra said.
He said the RBI and the finance ministry are discussing whether there is a need to modify those schemes or even introduce other schemes; whether the mechanism of CDR has to be modified and regarding the functioning of joint lenders’ forum. “To my mind, today we should look at CDR more as a monitoring platform. You need not really try to go and try to tweak the CDR mechanism, because if you take out 80% of the original CDR mechanism and say I am retaining 20% and putting new 80% components when you already have the other products already available,” he said.