Easing bad debt in banking system: How is RBI trying to tame the monster

Mumbai: A number of banks have reported huge losses due to sharp rise in provisioning for stressed assets over a couple of years. Bad loans of banks now exceed Rs 6 lakh crore -not including restructured loans that are likely to turn sour and ones already written off. To help ease banks' burden, RBI introduced a number of schemes over the last two years after switching off its corporate debt restructuring scheme in 2014. Sangita Mehta brings you a list..

Feb 2014 Joint Lenders Forum
Basically a preventive measure, it asked banks to get pro-active and act before an account turned non-perform ing. Involves formation of a lend ers' committee known as joint lenders forum (JLF) at an early stage. Account with principal and interest overdue for 30 days is to be classified as (a special mention ac count) SMA-0; 31-60 days as SMA-1 and amount overdue over 60 days as SMA-2. Lenders have to form a JLF when loan is overdue for more than 60 days and put in place a cor rective action plan within 30 days after the account is graded SMA-2.

June 2015 SDR Scheme
Strategic Debt Restructur ing Scheme, was intro duced to bypass legal hur dles faced by banks while taking charge of defaulting companies.

Under this, a bank can take man agement control of a defaulting company by converting part of its debt into equity but has to find a buyer for its stake within 18 months of initiating SDR. The bank doesn't need to downgrade the account within these 18 months. However, if it is unable to find a buyer during the period, the account has to be classified as a bad loan. The bank can take control without any judicial intervention.

July 2014 5:25 scheme
Popularly known as the 5:25 scheme, it involves flexible struc turing of long-term project loans to infrastructure and core-sector industries. Under the scheme, banks can extend a loan tenure to 20-25 years in a way that it matches project cash flows. The term 5:25 is used since the loan would be subject to refinancing every five or seven years. However, both the lender and the borrower have to adhere to certain conditions: the scheme is only for completed projects; banks cannot charge lower interest rates; and corporates (borrowers) have to pay the entire interest component even if the principal component is deferred in a step-up manner.

June 2016 S4A
S4A, or Scheme for Sustainable Structuring of Stressed Assets, involves restructuring of big-ticket loans of up and running projects. In case of a distressed companies, lenders need to separate sustainable loan from unsustainable loan. The bank would convert the unsustainable debt into equity or equity-related instruments. Here, the debt burden of the borrower is reduced substantially as it get converted into equity. At the same time promoter's equity stake falls sharply . The idea behind the scheme is that banks should get the upside if the company regains its old glory and it also gives borrower a second chance to revive the company .