Global rating agency Crisil, commenting on the newly launched scheme by RBI to deal with stressed assets has said that the scheme though will have some shortcomings, but will help large corporates and limit new additions to non-performing assets (NPAs) by banks in the near-term.
Crisil listing the limitation of the scheme said that the inclusion of completed projects, and not those under construction, for relief under the scheme is one of its biggest limitations. S4A (Scheme for Sustainable Structuring of Stressed Assets) also does not allow for any rescheduling of original tenure of repayment or repricing of debt. However, it also said that despite the limitations, if implemented successfully, S4A can strengthen ability of lenders to deal with stressed assets, which have potential to be revitalized by providing an avenue for reworking the financial structure of entities facing genuine difficulties.
The rating agency further highlighted that the scheme will help address shortcomings from RBI's two earlier tools - the strategic debt restructuring (SDR), where banks take over majority ownership in a company, and the 5:25 scheme of rescheduling. Unlike in 5:25, where banks could not take a haircut after structuring, S4A permits banks to do so by converting the unviable portion of debt to equity, it said.
Recently, RBI come out with a scheme for Sustainable Structuring of Stressed Assets. Under this scheme a portion of the debt will be converted into equity or other instruments under supervision of IBA’s Overseeing Committee.