With banks reeling under a mountain of bad debt, they have sought amendments to the Scheme for Sustainable Structuring of Stressed Assets (S4A).
In a meeting with Reserve Bank of India, bankers have asked for a number of changes, including a fresh moratorium (on payment of interest), extending the repayment schedule, waiving the requirement of personal guarantee by promoters, and doing away with the requirement that the sustainable portion of the debt should not be less than 50 per cent of current funded liabilities, The central bank had introduced the S4A scheme in June 2016.
The level of sustainable debt (that which can be serviced), according to bankers, should be based on an independent techno-economic viability (TEV) study and not be constrained by the minimum percentage of debt that will be sustainable.
While determining the sustainable debt level, factors such as the stressed company’s moves towards strategic/non-core asset sale and clubbing cash flows of subsidiaries/associates with the main operating/holding company should be taken into account, they added.
Further, bankers have told the RBI that the clause that projected cash flow be based on available cash flow from the current as well as immediately prospective (not more than six months) level of operations is impractical and needs to be done away with.
A senior banker said under the resolution plan for companies facing financial stress, a fresh moratorium needs to be granted on interest or principal repayment for servicing the sustainable portion of debt. The current S4A guidelines do not allow this.
Since the current guidelines are silent on price conversion in case of conversion of debt into equity, the bankers said not only should the conversion take place at an average of the 52-week high and low price, but the lenders or new strategic/financial investors should be exempt from making an open offer.
Bankers said that since in some cases the factors causing stress are beyond the control of the promoters, it is not feasible to require them to furnish personal guarantee. This is more so in the case of listed companies.
Given that most of the stressed companies have resorted to external commercial borrowings (ECBs) and also borrowed from financial institutions and non-banking finance companies, there is a need to expand the ambit of S4A’s coverage to include other lenders.
S&P Global Ratings has assessed that Indian banks’ credit profiles are unlikely to improve over the next 12 months, with the banking sector’s total stressed assets expected to increase to 13-15 per cent of total loans by end March 2018.