RBI to Tweak New Debt Restructuring Norms Soon: Rajan
RBI will soon release the revised debt restructuring norms, says Rajan.
The Reserve Bank of India is revisiting the norms it released on the Scheme for Strategic Structuring of Stressed Accounts, or S4A, and will soon announce revised guidelines, Governor Raghuram Rajan said. He was speaking at a banking summit organised by the Federation of Indian Chambers of Commerce and Industry and Indian Banks’ Association.
The new debt restructuring scheme was launched in July this year, and aimed at improving the process of resolution of non-performing assets that could continue to function as going concerns. As part of the scheme, the total debt owed by a borrower must be divided into sustainable and non-sustainable.
In order for the scheme to apply, the sustainable portion of the debt must be more than 50 percent of the total outstanding amount. If that’s the case, the unsustainable portion can be converted into equity or quasi equity, and a repayment schedule can be agreed on for the sustainable portion.
Bankers, including the State Bank of India’s Chairman Arundhati Bhattacharya, have raised concerns that it would be difficult for banks to apply the S4A scheme to several large accounts. They have pointed out that the 50 percent threshold is too high.
In his address, Rajan noted that the Asset Quality Review initiated by the RBI in early 2015-16 had improved recognition of non-performing assets by banks and subsequently provisioning.
“Now focus should move to improving the operational efficiency of stressed assets, and creating the right capital structure so that all stakeholders can benefit,” said Rajan.
New project management teams should be brought in, both as owners, and in some cases as managers in these stressed companies, Rajan said. But if existing promoters were reliable, they should be retained, he added as a caveat.
The RBI governor also stressed on the need to tailor the capital structure according to what is reasonable, given the project’s situation. He pointed out that if a loan account was standard but was struggling, it would be prudent to create a more sensible capital structure using schemes that have been made available by the RBI, including 5/25 refinancing, strategic debt restructuring, and S4A.