NaBFID MD bats for re-introduction of S4A-like debt recast scheme

Rai said at present, there is not a single asset calling out for such help but it is essential to get a facility which will enable “rightsizing of debt” and make it more sustainable. He also said that given the present system, no entity can exploit the S4A scheme by indulging in things like the evergreening of loans.

HT Image
HT Image

The RBI had introduced the S4A scheme in 2016 and ended in February 2018. Debt was split into sustainable and unsustainable based on cash flows under the scheme, which was focused on corporate loans and also had a threshold above which an account could qualify.

Wrap up the year gone by & gear up for 2024 with HT! Click here

“We need to see the context in which it was brought and how it was used. And now, we are talking in a totally different context,” Rai told PTI, pushing for the introduction of the S4A scheme.

The veteran banker who joined the National Bank for Financing Infrastructure and Development (NaBFID) after heading state-run Union Bank of India, said there was a huge pile of NPAs which the banking system was saddled with back then, whereas the same was not the case now.

NPAs were also arising out of court orders, delays in environmental clearances for projects, cancellation of mines etc, he said, adding that the banking system used the scheme to delay the recognizing a non-performing asset and make provisions accordingly.

“That time the way we handled it was not right. Doing away totally with that is not good. So, right now we may need it,” he said.

When asked if the infrastructure sector will benefit from the re-introduction of S4A, Rai said, “100 per cent” and gave hypothetical examples of how it can help. A toll-way project where collections do not happen as per projections due to things like a parallel road cropping up, or a solar project where the revenues go down due to climatic changes can be helped with rightsizing of debt, he said.

It may be a case of merely a shortfall in revenues leading to challenges in servicing the full debt, he said, explaining that a rightsizing of debt can help ensure that the project goes on and the bank loan is serviced.

“It is basically to protect the value of the asset so that banks don’t lose 100 per cent of the money. Banks will be prepared to take a 20-30 per cent hit but the asset will be serviced,” he said.

If a S4A-like scheme is not there, a bank will have to recognise an entire project as a NPA, thus killing the entire project, he said, adding that bankruptcy proceedings will be initiated and a bank will get only 20-30 per cent from the resolution process.

When asked if he has raised the demand for having a S4A-like scheme during meetings with policymakers, he said there is a need to initiate some kind of discussion on it keeping in mind the requirements of the future, where we will definitely be facing an economic downcycle.

Leave a Reply

Your email address will not be published. Required fields are marked *