Financial Awareness for RBI Grade ‘B’ Officer: Scheme for Sustainable Structuring of Stressed Asset

What is S4A?

S4A means ‘Scheme for Sustainable Structuring of Stressed Assets’. In order to strengthen the lenders’ ability to deal with stressed assets, the Reserve Bank of India (RBI) in June 2016 unveiled new scheme — Scheme for Sustainable Structuring of Stressed Assets (S4A) — for “reworking the financial structure” of big corporate entities “facing genuine difficulties”.

The RBI had earlier formulated Corporate Debt Restructuring (CDR), Joint Lenders Forum (JLR), strategic debt restructuring (SDR), 5/25 scheme and sale of assets to asset reconstruction companies. However, the level of bad loans has been rising.

According to RBI, the S4A 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.

What are the pre-conditions to be eligible for the scheme?

The aggregate exposure of all lenders to the company should be more than Rs 500 crore.

How does RBI define sustainable debt?

Simply put, the portion of the loan that can be serviced through the existing cash flow is defined as sustainable debt. RBI has said that sustainable loan should be at least 50% or more of the unsustainable debt. The loan can be approved for S4A only if the Overseeing Committee endorses it.

What is the role of an Overseeing Committee?

In order to make sure that the entire exercise is carried out in a transparent and prudent manner, S4A envisages that the resolution plan will be prepared by credible professional agencies, while an Overseeing Committee, set up by the Indian Banks Association, in consultation with the RBI, comprising of eminent experts. Lenders have to submit the resolution plan to the Overseeing Committee (OC). The OC will review the processes involved in preparation of resolution plan, for reasonableness and adherence to the provisions of these guidelines, and opine on it.

Why do we need S4A?          

This is aimed to revive companies that are facing stress due either due to slowdown in the economy or over leveraging. For the fiscal year 2015-16, non-performing assets touched Rs 6 lakh crore.