NPA resolution: Banks seek relaxation in S4A scheme

Banks have sought a few relaxation from the RBI in the current Scheme for Sustainable Structuring of Stressed Assets (S4A), including waiver of promoters' personal guarantee, for quick resolution of stressed assets.

Bankers have also requested the regulator to allow them to extend repayment schedule and reduce rate of interest under the scheme. These are not allowed in the exiting S4A guidelines.

The present norms demand that the joint lending forum or banks obtain promoters' personal guarantee while implementing the scheme.

"For stressed companies, the factors causing the stress are beyond the control of the promoters. Therefore, it is impractical to require furnishing of personal guarantee, especially in case of listed companies. So, the requirement of furnishing personal guarantee must be waived," a source said.

Lenders said the purpose of S4A is to remove the financial stress of companies for which some relaxation in terms of repayment schedule or reduction in rate of interest is needed.

"The RBI should allow us to grant fresh moratorium or extension of repayment schedule or reduction of rate of interest to help companies come out of stress," the source said.

Banks, however, said the relaxations in repayment schedule should be indicated by the techno-economic viability (TEV) study.

These recommendation were made to the Reserve Bank by the lenders in a meeting held yesterday. The meet was called to discuss stressed asset resolution plan.

To facilitate timely decision-making for resolution of stressed assets, the RBI, in a May 5 notification, said decisions agreed upon by a minimum of 60 per cent of creditors by value and 50 per cent of creditors by number in the JLF would be considered as the basis for deciding the corrective action plan (CAP), and will be binding on all lenders.

Lenders have suggested the RBI to take into consideration ECB lenders, financial institutions, NBFCs under the scheme as most of the stressed firms have large exposure from other lenders, including ECB lenders, he said.

Currently, the S4A scheme can be applied only if the sustainable debt is at least 50 percent of current funded liabilities.

Bankers have asked RBI to allow them to implement the resolution plan on the basis of the recommendations of TEV study without being constrained by any minimum percentage of sustainable debt.

"The level of sustainable debt would vary from company to company and therefore, for a stressed company, minimum requirement of sustainable debt being 50 per cent of current funded liability is impractical," bankers said.

Banks have asked the RBI to let them include on-going company's initiatives towards strategic asset sale and also allow clubbing of cash-flows of subsidiaries with main operating holding company while calculating sustainable debt portion.

In case of conversion of debt into equity for listed companies, banks want the conversion at an average of 52-week high and low to lessen effect of temporary price variations.

Yesterday's meeting was attended by heads of ICICI Bank, IDBI Bank, Axis Bank, HDFC Bank, Standard Chartered Banks and Canara Bank.

Senior officials from SBI and Bank of Baroda were also present in the meeting held at the RBI headquarters here.