Scheme for Sustainable Structuring of Stressed Assets (S4A)

07 May 2017, Manish Padhi

Assets : 

An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

In order to further strengthen the lenders’ ability to deal with stressed assets and to put real assets back on track by providing an avenue for reworking the financial structure of entities facing genuine difficulties, the Reserve Bank of India has issued guidelines on a ‘Scheme for Sustainable Structuring of Stressed Assets’.

This is aimed to revive companies that are facing stress due either due to slowdown in the economy or over leveraging.

In order to make sure that the entire exercise is carried out in a transparent and prudent manner, S4A envisages that the resolution plan will be prepared by credible professional agencies.

An Overseeing Committee, set up by the Indian Banks Association, in consultation with the RBI, comprising of eminent experts will independently review the processes involved in preparation of the resolution plan.

Construction major HCC’s Rs.5,000-crore debt recast has become the first case to get approval under Scheme for Sustainable Structuring of Stressed Assets (S4A).

Key features

  • Portion of the debt can be converted into equity.
  • It will cover those projects which have started commercial operations and have an outstanding loan of over Rs 500 crore.
  • Under the plan, the debt will be divided into two parts. Part A will include debt that can be serviced from existing operation while the remaining will be classified as Part B.
  • The new restructuring scheme will help Indian banks in cleaning up large chunks of their bad loans.
  • Once the unsustainable debt is converted to equity, banks can sell this stake to a new owner.
  • It helps to restore the flow of credit to crucial sectors.

Limitations

However, the S4A scheme cannot be applied to all cases of stressed exposure. The limitations of the scheme are as follows:

  • It can be applied to only operational projects and not to projects under construction.
  • It does not allow for any rescheduling of original tenure of repayment of debt.

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