In June 2016, the Reserve Bank of India (RBI) introduced yet another scheme-- -Scheme for sustainable restructuring of stressed assets (S4A) -- -for the harried public sector banks to consider as a tool in their limited armoury to fight against non-performing assets (NPA), a euphemism for bad debts.
Corporate Debt Restructuring (CDR) is rescheduling of outstanding loans often involving compromise and financial loss to banks. Strategic Debt Restructuring (SDR) involves conversion of the full or part of the outstanding into equity. It has had
few takers because once bitten twice shy-- -banks have learnt a lesson from the Kingfisher experience. Equity is not always elixir to be coveted or thirsted.
S4A is a slight improvement over SDR in that only 50 percent of the outstanding is required to be converted into equity, with the remaining 50 percent being mandatorily serviced by the borrower. The latter is what is known as sustainable outstanding, the portion the borrower would have no difficulty in repaying as well as in payment of interest. This indeed is a huge leap of faith because it must be remembered that the defaulter all these years did not care to service even the sustainable part of his loan. Be that as it may.
Essar Steel and Hindustan Construction Corporation, the notorious large ticket defaulters have evinced interest in S4A even though there are reports that things might change in the wake of the recent fire sale of Essar Oil to the Russian Conglomerate for a whopping Rs 86,000 crore, enough to substantially repay the group’s borrowings. The first to be nudged into embracing S4A among the public sector companies is Air India which owes the banks upwards of Rs 10,000 crore.
24/10/16 S Murlidharan/F.Business
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Corporate Debt Restructuring (CDR) is rescheduling of outstanding loans often involving compromise and financial loss to banks. Strategic Debt Restructuring (SDR) involves conversion of the full or part of the outstanding into equity. It has had
few takers because once bitten twice shy-- -banks have learnt a lesson from the Kingfisher experience. Equity is not always elixir to be coveted or thirsted.
S4A is a slight improvement over SDR in that only 50 percent of the outstanding is required to be converted into equity, with the remaining 50 percent being mandatorily serviced by the borrower. The latter is what is known as sustainable outstanding, the portion the borrower would have no difficulty in repaying as well as in payment of interest. This indeed is a huge leap of faith because it must be remembered that the defaulter all these years did not care to service even the sustainable part of his loan. Be that as it may.
Essar Steel and Hindustan Construction Corporation, the notorious large ticket defaulters have evinced interest in S4A even though there are reports that things might change in the wake of the recent fire sale of Essar Oil to the Russian Conglomerate for a whopping Rs 86,000 crore, enough to substantially repay the group’s borrowings. The first to be nudged into embracing S4A among the public sector companies is Air India which owes the banks upwards of Rs 10,000 crore.
24/10/16 S Murlidharan/F.Business
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