Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

SBI seeks further easing of S4A norms

On 10 November, RBI had eased some S4A rules and norms of some other bad loan management tools

State Bank of India (SBI) has written to Reserve Bank of India (RBI) seeking further relaxation of the scheme for sustainable structuring of stressed assets (S4A), said two bankers aware of the development.

“Any kind of restructuring plan needs to allow either reduction of interest rates, extension of repayment period or additional funding for troubled borrowers. Else, turning the underlying company around is not possible," said one of the bankers, a senior official at SBI, on condition of anonymity as he is not allowed to speak to reporters.

An RBI spokesperson did not respond to queries sent on Thursday.

In guidelines issued in June, the central bank had insisted there shall be no fresh moratorium offered on principal or interest payment in cases where S4A has been invoked. RBI had also said that banks will not be able to offer extension on the principal repayment or reduction in interest rates under this scheme.

“Previously, we had asked the regulator about giving us some allowances on these aspects of S4A. However, the clarifications that came in after that did not mention them," said the second banker, who didn’t wish to be identified.

“RBI doesn’t stop banks from restructuring an asset outside the S4A mechanism. If the banks want to restructure an asset, they can very well use it for the whole account and not just limit it to one half of the debt," said Nirmal Gangwal, managing director at debt restructuring firm Brescon Corporate Advisors Ltd.

“In fact, the provision would work out to be even lesser if they restructure the whole account," he added.

On 10 November, the banking regulator had eased some S4A rules and norms of some other bad loan management tools such as strategic debt restructuring (SDR) and 5/25 long-term refinancing. In its notification, RBI said that it would allow banks to classify sustainable half of the stressed debt as standard, even if the case is a non-performing asset (NPA) before invoking the S4A provision. The central bank also allowed banks to write back all the provisions made against the case, if the sustainable part of the debt showed satisfactory performance for a year.

Under S4A, the banks are allowed to split the debt of a stressed company into sustainable and unsustainable halves. While the firm will continue to serve the sustainable half of the debt, the unsustainable half can be converted into long-term equity or equity-like instruments which are held in their investment book.

Sustainability needs to be established using a technical evaluation study and the whole process needs to be vetted by an overseeing committee which will affirm that all due procedures are followed.

“We’ve already performed forensic audits and evaluation studies on cases which we feel would deserve S4A treatment. Once RBI allows us to change the terms of the loan, we can move ahead with these cases," the SBI official quoted above said.

On 7 November, Mint had reported that bankers to Alok Industries Ltd and Bhushan Steel Ltd had put S4A implementation on hold, as they awaited clarity from RBI on final norms.