Mumbai: Shares of state-owned banks surges on Tuesday after the Reserve Bank of India (RBI) came out with a scheme for resolution of bad loans of large projects wherein a portion of the debt will be converted into equity or other instruments.
Shares of Punjab National Bank (PNB) surged 7.90%, Bank of India 3.37%, Bank of Baroda 1.99%, Indian Overseas Bank 2.13% and that of State Bank of India (SBI) gained 2.65%.
RBI on Monday came out with a scheme for resolution of bad loans of large projects wherein a portion of the debt will be converted into equity or other instruments under supervision of IBA’s overseeing committee. The Scheme for Sustainable Structuring of Stressed Assets (S4A) will cover those projects which have started commercial operations and have outstanding loan of over ₹ 500 crore.
RBI said the S4A, an optional framework for resolution large stressed accounts, “envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around". As per the resolution plan, the debt will be divided into two parts—Part A will include debt which can be serviced from the existing operation while remaining will be classified as Part B.