The Reserve Bank of India (RBI) logo is displayed at the entrance to the bank’s headquarters in Mumbai (Photographer: Kainaz Amaria/Bloomberg)

Banks Seek RBI Exemption On SDR Accounts

Banks have approached the Reserve Bank of India seeking an exemption from classifying accounts which were under the erstwhile strategic debt restructuring scheme as non-performing assets, two bankers with knowledge of the matter said.

In a written communication last week, the Indian Banks' Association requested the RBI to revise its new stressed asset guidelines so that the accounts that were under the 18-month standstill clause of the SDR scheme may continue to be classified as standard, the bankers told BloombergQuint requesting anonymity.

Lenders fear that if the regulator does not allow them to continue with the standstill clause, the NPAs for most banks would spike considerably in the January-March quarter.

In an interview with BloombergQuint on Wednesday, Rajkiran Rai, the managing director and chief executive officer of Union Bank of India confirmed that bankers had approached the regulator for the forbearance to continue.

On Feb. 12, the central bank came out with a revised set of stressed asset guidelines and withdrew all existing resolution schemes such as SDR, the scheme for sustainable structuring of stressed assets or S4A, the long-term refinancing scheme, and the corporate debt restructuring scheme with immediate effect.

“All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework,” the RBI had said.

The SDR scheme, which was introduced in June 2015, allowed banks to convert a portion of a stressed company’s debt into majority equity. The bankers would then receive an 18-month moratorium on the asset classification of the account, during which they were expected to find a qualified buyer for the equity. In cases where banks were not able to strike a deal with a buyer in 18 months, the standstill clause was lifted, and the account would be classified as non-performing.

Bankers had enthusiastically invoked the SDR facility in many of the large stressed assets, to avoid NPA classification for 18 months. However, follow-through deals – that took the asset off the lenders’ hands – were few, and banks found themselves holding equity ownership in diverse businesses.