Finance

Banks urge RBI to soften qualifying norms for S4A scheme

MUMBAI: Beleaguered bankers on Tuesday demanded that the Reserve Bank of India ease conditions on loans that would qualify for restructuring under the so-called S4A scheme and permit them to spread the losses arising out of such a deal over many quarters, said two people familiar with the matter.

Bankers told the regulator during a meeting that changes in the rules governing restructuring is essential for the banking sector to overcome the Rs 12 lakh crore of stressed assets in the system and begin lending actively again, said those people who did not want to be identified.

“The crucial demand was that S4A should be permitted even if the sustainable portion of the loan is below 50%,” said one of the persons. “Because there are huge loans, which even if 30% or 40% is restructured it would be a big boost to the industry.”

The RBI, banks and the government have been contemplating ways to resolve the bad loans logjam that’s crippling the sector. Many state-run banks are precariously low on capital adequacy; and in cases like IDBI Bank, the regulator has imposed restrictions on lending and other activities. An e-mail sent to RBI spokesperson about the deliberations did not get a response.

The RBI’s S4A scheme which insisted that at least 50% of the loan of a defaulter should be sustainable to qualify for restructuring did not help resolve the issue since many companies’ cash flow were insufficient to service even half their loans.

The government on its part came up with an ordinance empowering the RBI to work around ways to direct banks to restructure loans and direct lenders to take companies to insolvency courts. Subsequently, the RBI ordered banks to have more co-operation in resolving potential bad loans by empowering the Joint Lenders Forum to be the final word on restructuring of loans that are yet to turn sour.

Bankers also said they should be given a leeway in providing for loans that are restructured. They demanded that any losses should be spread over many quarters instead of providing for them immediately upon restructuring to avoid massive losses.

Expanding the scope of the Oversight Committee and the role of credit rating companies in future restructurings were also discussed where some bankers expressed opinion that the sustainable portion of the debt could be rated investment grade.

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Banking/Finance-Industry-The Economic Times

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