With only two people in charge of vetting all loan recast decisions through the oversight committee (OC), banks believe more such committees would hasten the process, thus helping resolve stress.
With only two people in charge of vetting all loan recast decisions through the oversight committee (OC), banks believe more such committees would hasten the process, thus helping resolve stress. According to some senior bankers FE spoke to, while banks have sought inclusion of the OC approval for all types of recasts, a single two-member committee would not serve the purpose. “Right now, only a handful of accounts have been referred to the OC under the sustainable structuring of stressed assets (S4A). But as more accounts are sent for approval, the OC will not be able to approve them fast enough,” one of the bankers said. At present, former chief vigilance commissioner Pradeep Kumar and former SBI chairman Janki Ballabh are part of the OC.
According to another banker, the OC is tasked with examining if all the processes have been followed before sending the account to the committee. “It’s more like ticking check boxes, but if finding malafide intent in initiating a loan recast in the first place is the priority, then even OC approvals would not help,” he explained.
Recently, lenders have sought OC approval for recast of `3,890 crore of loans to Soma Enterprise via the S4A. If approved by the by RBI- mandated committee, it would be the fourth recast to be taken up via the S4A route after HCC, GKC Projects and GVR Infra. The S4A scheme has been viewed as an improvement over the SDR plan since promoters remain with the firm, while the SDR envisages bringing in a new set of promoters. The S4A scheme is also more lenient since bankers can take an effective haircut of 50%.
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The scheme, however, does not permit changes in the terms of either the moratorium or payment of principal amount or interest. Banks are permitted to convert the ‘unsustainable’ part of the debt into equity or redeemable cumulative optionally convertible preference shares. To be eligible for the scheme, projects should have commenced commercial operations and the total exposure (including accrued interest) should be more than `500 crore. Moreover, lenders need to have provided for at least 20% of total loans.