Non-performing assets (NPAs) have taken a toll on the Indian banking sector in the last couple of years. The Reserve Bank of India (RBI) and the government have taken several measures in recent years to resolve the NPA issue but there hasn't been much progress, as promoters have little money to invest.
Wiser from experience, RBI has come up with revised norms - the Scheme for Sustainable Structuring of Stressed Assets (S4A) - to address these cases. S4A is an improvement over the previous 5:25 scheme and it allows banks to take a haircut. Also, banks do not have to find a new buyer in a definite period of time, as was the case under Strategic Debt Restructuring (SDR) rules. Under SDR norms, banks had to find a new buyer within 18 months. S4A incentivises existing promoters to opt for this scheme as they can continue to hold majority stake.
However, according to rating agency CRISIL, the new scheme has limitations. For example, it does not allow for any rescheduling of original tenure of repayment or repricing of debt. Sustainable debt under the scheme - which needs to be at least 50 per cent of the total - is based only on the ability of current cash flows to cover repayment. It cannot factor in incremental cash flows that could accrue as the external environment improves.
The jury is out on whether this new scheme will eventually help banks recover their dues. The adjoining list is of debt-heavy companies (from Nomura Securities) where lenders have attempted SDR without effective resolution, and is only for indicative purposes. In the eventuality of banks having to take over majority control in the listed companies, they would need to convert Rs 4,180 crore of debt into equity. The calculation is based on the share price, debt-level and market capitalisation of these companies as on June 15.