Since 2014-15, the RBI has implemented a number of schemes to facilitate resolution of the NPAs problem of the banks are briefly discussed below:
1.S4A SCHEME (Scheme for Sustainable Structuring of Stressed Assets)
An independent agency is hired by the banks which decides how much of the stressed debt of a company is ‘sustainable’. The rest (‘unsustainable’) is converted into equity and preference shares.
Unlike the SDR arrangement, this involves no change in the ownership of the company.
2. ASSET QUALITY REVIEW (AQR)
Resolution of the problem of bad assets requires sound recognition of such assets. Therefore, the RBI emphasized AQR, to verify that banks were assessing loans in line with RBI loan classification rules.
3. STRATEGIC DEBT RESTRUCTURING (SDR)
SDR provides an opportunity to banks to convert debt of companies (whose stressed assets were restructured but which could not finally fulfill the conditions attached to such restructuring) to 51 per cent equity and sell them to the highest bidders—ownership change takes place in it.
4. PRUDENTIAL NORMS
Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances.
5. ASSET RECONSTRUCTION COMPANIES (ARCs)
An asset reconstruction company is a special type of financial institution that buys the debtors of the bank at a mutually agreed value and attempts to recover the debts or associated securities by itself.
The asset reconstruction companies or ARCs are registered under the RBI and regulated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act, 2002).
The ARCs take over a portion of the debts of the bank that qualify to be recognised as Non-Performing Assets. Thus ARCs are engaged in the business of asset reconstruction or securitisation or both.
But the ARCs (most are privately-owned) finding it difficult to resolve the NPAs they purchased, are today only willing to purchase such loans at low prices.
As a result, banks have been unwilling to sell them loans on a large scale.
6. 5/25 REFINANCING
Under this scheme lenders were allowed to extend the tenure of loans to 25 years with interest rates adjusted every 5 years, so tenure of the loans matches the long gestation period in the sectors.
The scheme thus aimed to improve the credit profile and liquidity position of borrowers, while allowing banks to treat these loans as standard in their balance sheets, reducing provisioning costs against NPAs.
