RBI set to relieve the banks and the debt ladens

In a bid to relieve the debt laden big firms, RBI has announced deep restructuring norms. RBI would further reinforce the lenders’ ability to deal with stressed assets and put real assets back on track. To implement the same RBI has uncovered a new scheme ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)' for “reworking the financial structure” of big corporate entities “facing genuine difficulties”.

Prior to this, RBI had announced a corporate debt restructuring (CDR), Joint Lenders Forum (JLF), Strategic Debt Restructuring (SDR), 5/25 scheme and sale of assets for asset restructuring companies. However, the formulations didn’t work and witnessed rising bad loans and thereby the gross NPAs. NPAs stands at Rs 2.41 lakh crores from October to March 2016 where PSU Banks undertook aggressive provisioning under RBI.

In the recently announced S4A, RBI would identify the sustainable debt level for the stressed borrowers and separation of the outstanding debt into sustainable debt and equity instruments to give upside to the lenders when borrowers fail to realise the amount. The scheme would be applicable to those institutional lenders whose aggregate exposure along with the interest is more than Rs 500 crores.

To start with, to determine the serviceable debt, the free cash flow will be allocated to service the current debt. The balance left would be converted into equity/redeemable cumulative optionally convertible preference shares or into optionally convertible debentures.

To ensure transparency in the working of S4A and also to protect the lenders from future scrutiny by enforcement agencies, RBI has set up an oversight committee to check invocation of the scheme.

The debt laden big stocks are trading on a positive note today. IVRCL Ltd., has surged 6 per cent; Jaiprakash Associates Ltd., has soared by 4per cent; Jaiprakash Power Ventures Ltd., is up 4per cent; Jaypee Infratech Ltd.,  is up 5per cent; Bhushan Steel Ltd., is up 12 per cent; Monnet Ispat Energy Ltd., is up 8 per cent; GVK Power is up 6 per cent; Alok Textile Ltd., is up 6per cent; Unitech Ltd., is up 4per cent; Suzlon Ltd., is up 3.3 per cent; and GMR Infrastructure is up 3 per cent.