Letters: SDR flawed

With reference to "Strategic debt recast may hit banks' credit growth" (January 13), when banks cannot manage their own business of accepting deposits for purposes of lending, how can they be "in the business of running companies"?

The strategic debt recast (SDR) scheme has several flaws. First, it assumes that conversion of debt into equity would solve the problem. Second, such a conversion simply devolves the responsibility of managing those companies on lenders. Third, promoters coolly walk out of the problematic situation and may laugh at the helpless condition of lenders. When the SDR scheme was evolved, the bankers did not have the guts to oppose the scheme. All that is because 90 per cent of the exposure under the SDR scheme relates to public sector banks, and they do not know the next step in recovery. Further, no new promoters would be willing to accept the units under SDR without matching benefits. Matching benefits imply significant haircuts in debt that would further jeopardise the lenders.

K V Rao Bengaluru

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