In a move to help banks recover their bad loans, Reserve Bank of India (RBI) revised norms under the Scheme for Sustainable Structuring of Stressed Assets (S4A) by allowing lenders to treat sustainable debt as standard asset, subject to certain conditions. RBI has said that the changes in the Scheme are based on the experience gained as well as feedback received from stakeholders, and taking into consideration the requirements of the construction sector. It has given lenders additional time up to 180 days for hammering out a restructuring package under the scheme, previously the time limit was 90 days.
Under S4A, the debt is divided into two parts. Part A will includes debt which can be serviced from the existing operation, while remaining is classified as Part B. The sustainable portion of Part A may optionally be treated as 'Standard' upon implementation of the resolution plan by all banks. This would be subject to provisions made upfront by the lenders being at least the higher of 50 percent of the amount held in part B or 25 percent of the aggregate outstanding (sum of Part A and part B). For this purpose, the provisions already held in the account can be reckoned.
RBI also said that those assets considered non-performing would continue to be classified as non-performing investment and provided for as a non-performing asset as per extant prudential norms, as long as such instruments remain in Part B. The scheme has been introduced to further strengthen the ability of lenders to tackle stressed assets and provide an avenue for reworking the financial structure of entities facing genuine problems. Recently, the RBI has taken various regulatory measures to strengthen the lenders ability to deal with stressed assets.