S4A guidelines to be reviewed

The Reserve Bank of India (RBI)'s stance in dealing with bad loans seems to have shifted from an aggressive approach under former governor Raghuram Rajan to a more pragmatic one under Urjit Patel, the current chief.

"We will deal with the situation with firmness, but also with pragmatism so that the economy does not feel any lack of credit to support growth. We must remember that the situation has not appeared overnight and, therefore, will require skill and thoughtful endeavour to resolve," he said.

This comes at a time when bank credit to the corporate sector has remained sluggish, dragging overall credit offtake to single digits. This is because the large amount of non-performing assets (NPAs) in the corporate sector is making banks wary of lending to certain segments and the slow pace of economic activity has resulted in low credit demand. Patel added that helping banks deal with this situation is of utmost importance.

"Just five sectors contribute 61 per cent to the stressed assets of the banking sector. Infra, steel, textiles, power and telecom. The sectors are each individually important and dealing with stressed assets will require skill and creativity," said Patel.

Gross NPAs of public sector banks (PSBs) have risen from Rs 5.02 lakh crore in March to Rs 5.59 lakh crore in June.

In the past few years, RBI has devised several measures such as Joint Lenders' Forum, Strategic Debt Restructuring, 5/25 scheme, etc., to tackle the problem. Recently, the Scheme for Sustainable Structuring of Stressed Assets (S4A) was unveiled. However, RBI has now decided to review these guidelines to make them more effective.

"There was this idea that the sustainable portion of this debt, irrespective of what it was before, should be classified as standard. So, they have agreed to that and we will be coming up with final guidelines by end of October. There will be certain conditions subject to which it will be done so that it is not used for wrong cases," said RBI Deputy Governor N S Vishwanathan. In the S4A scheme, banks are to divide the existing debt of a company into a sustainable (which can be serviced by the company even if cash flow remains the same) and an unsustainable portion. An independent oversight agency will ascertain the viability of a project and the resolution plan.

Bankers have welcomed the tweaking of S4A norms. "The smoothening of S4A guidelines will help in easier resolution of stressed assets and will be a relief to the banking system," said N S Venkatesh, executive director, Lakshmi Vilas Bank.

B Sriram, managing director of SBI said the proposed modification in the rules for S4A will be beneficial to take up cases for restructuring. However, it is too early to specify if more cases would be dealt.