RBI overhauls debt restructuring norms
Photo Credit: Shah Junaid/VCCircle

RBI today modified norms under the new scheme for restructuring stress loans by allowing lenders to treat sustainable debt as standard asset, subject to certain conditions.

The changes in the Scheme for Sustainable Structuring of Stressed Assets (S4A) is based on the experience gained as well as feedback received from stakeholders, and taking into consideration the requirements of the construction sector, the central bank said in a notification.

Under S4A, the debt is divided into two parts -- Part A will includes debt which can be serviced from the existing operation, while remaining is classified as Part B.

"The sustainable portion (Part A) may optionally be treated as 'Standard' upon implementation of the resolution plan by all banks," RBI said in a notification.

This would be subject to provisions made upfront by the lenders regarding debt.

RBI also said that those assets considered non-performing would continue to be classified as "non-performing investment and provided for as a non-performing asset as per extant prudential norms, as long as such instruments remain in Part B".

Lenders could upgrade Part B to standard category and reverse the associated enhanced provisions after one year of satisfactory performance of Part A loans.

In case of any pre-existing moratorium in the account, "this upgrade will be permitted one year after completion of the longest such moratorium, subject to satisfactory performance of Part A debt during this period".

However, the required Mark-To-Market (MTM) provisions need to be maintained at all times.

"Banks shall make disclosures in their annual financial statements on application of the Scheme for Sustainable Structuring of Financial Assets" in a particular format provided by the RBI, according to the notification.

S4A has been introduced to further strengthen the ability of lenders to tackle stressed assets and provide an avenue for reworking the financial structure of entities facing genuine problems.

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