The Reserve Bank of India is likely to tweak the guidelines for the Scheme for Sustainable Structuring of Stressed Assets (S4A), as banks have not been able to make much headway with the scheme, senior bankers told FE.
The rules, they said, might be diluted – the sustainable portion of the debt need not be 50% of the total as is currently mandated, but a smaller share. In other words, if lenders decide just 40% of the total debt is sustainable going by the current cash flow, they can initiate the S4A. However, that would require them to convert more than 50% of the existing debt into redeemable cumulative optionally convertible preference shares.
Currently, banks need to bifurcate the debt into two parts – sustainable and unsustainable – and the sustainable portion must be at least half the total debt. Bankers also need to ensure that the current cash flow is adequate to service the sustainable debt. Some bankers have pointed out that future cash flows too need to be taken into account. Right now, at most companies, cash flows are good enough to service just 35-40% of the sustainable debt. Should the RBI allow future cash flows to be taken into account, the amount of debt sustainable would go up.
Arundhati Bhattacharya, chairman of State Bank of India, had pointed out that if only the current cash flows were considered, it would be difficult to identify projects that have 50% sustainable debt. The regulator, she said, should take into consideration the fact that the debt would come down once the S4A is invoked, resulting in lower outflows to service the loan.
“If you’re projecting only on the basis of current cash flows, you’re not taking into consideration their interest flows, which will go down when you do the cut in the debt. If you take the upside, the sustainable debt may go to 70-80%,” Bhattacharya had said.
RBI governor Urjit Patel had indicated in early October that the central bank would be reviewing efforts of banks to resolve the issue of non-performing loans. “We will deal with the situation with firmness but also with pragmatism so the economy does not feel any lack of credit to support the growth in the economy,” Patel had said at a press conference following the monetary policy review.
Among tools that bankers have to deal with stressed assets are SDR (strategic debt restructuring), outside SDR and the S4A scheme. Bankers have initiated the SDR scheme for around 18
companies. Gross non-performing assets in the banking system were more than R6 lakh crore at the end of June.