RBI eases S4A debt restructuring norms

Mumbai, Nov 11 (KNN) Reducing some burden of the lenders, the Reserve Bank of India has revised debt recast rules and has eased various stressed asset resolution schemes. RBI has also streamlined the process for change of ownership of stressed assets outside of the strategic debt restructuring (SDR) process, which allowed creditors to convert debt into equity and take over the management of defaulting companies.

RBI had earlier said that it had taken note of requests from the banking sector to relax provisioning rules under the Scheme for Sustainable Structuring of Stressed Assets (S4A).

Under S4A, banks were allowed to divide a company’s debt into a sustainable part and an unsustainable part.

The sustainable part, which had to be at least 50 percent of the total debt, could be serviced with existing cash flows. The unsustainable part of the debt could be converted into equity or equity-linked instruments and held in the investment books of the bank.

Now according to the new rules the sustainable part of the debt may be treated as a ‘standard asset’ upon implementation of the scheme subject to some provisions being set aside. The provisions to be made upfront should be the higher of 50 percent of the unsustainable amount or 25 percent of the total amount of the loan.

Further, the RBI says that the unsustainable part can be upgraded to standard category after one year of satisfactory performance of the sustainable part of the debt.

The revised norms say in case a non-performing asset (NPA) is restructured under S4A norms, the sustainable part of the debt can be classified as standard if banks set aside provisions equal to at least 50% of the debt classified as unsustainable or 20% of aggregate debt, whichever is higher.