 "India Inc wants overhaul of S4A guidelines")
These firms say the scheme has failed to gauge the liquidity crisis faced by projects that were stalled due to lack of last-mile funding and external factors such as delay in land acquisition and environment clearances.
Following feedback from firms, RBI had said, on Tuesday, that banks would be allowed to classify the ‘sustainable’ part of debt as standard under the S4A scheme. According to the S4A scheme announced in June this year, 50 per cent of the debt was to be restructured as ‘sustainable’ and the rest as ‘unsustainable’. There was a moratorium on repayment of the unsustainable part of the debt. But, there was a caveat — the entire ‘sustainable’ part of the loan was to be classified as a non-performing asset (NPA), thus, derailing the entire scheme, as banks were not ready to increase their bad loans. The hurdles to the scheme include lack of taking into account cash-flow beyond six months, personal guarantees sought from promoters and lack of longer tenure for the ‘sustainable’ debt. Besides, the scheme was not applicable to stalled projects, which needed last-mile funding to complete the project.
According to chief financial officers (CFOs), for arriving at the sustainable part of the loan, the techno-economic viability study was to be based on the current cash-flows for the next six months. “This was regressive, as a large number of operational projects and stressed infrastructure companies, which are operating at low capacity, will struggle to service even half the debt and may not be able to participate in the scheme at all,” said the finance head of a large steel company.
He said the fortunes of the Indian steel sector changed only after the Narendra Modi government imposed a minimum import price on imported steel in October last year, thus, giving respite to local steel companies. In August this year, steel production rose to a 37-month high and cement production maintained momentum — auguring well for construction activity, RBI said on Tuesday.
Another hurdle was the scheme sought personal guarantees from Indian promoters for repayment of loans. Many promoters were not ready to give personal guarantees, especially after what happened to Vijay Mallya, said a banker.
CFOs said the S4A scheme did not allow any moratorium on repayment of the sustainable part of the loan and locking it to five years. “The loan repayment should be elongated, so that it actually benefits a company that is facing difficulties due to global slowdown or commodity meltdown of last year,” said another CFO.
Bankers said the scheme was a non-starter, as it continued to put heavy burden of provisions on the banks, while continuing to treat the asset as non-performing. Another public sector executive said the scheme was taking time, as accounts would go through techno-economic viability study, forensic audit, apart from nod from an independent oversight panel. A senior State Bank of India executive said now there would be incentive to take large cases under S4A, as treating sustainable portion as standard asset will reduce a substantial portion of NPA pool. Most of these cases would have loans in excess of Rs 40,000 crore. So, even if 25 per cent is being considered sustainable, it would help the balance sheet look better.
S4A: SUSTAINED BOTTLENECKS
- Scheme applicable only for operating companies and not for stalled projects
- Techno-viability study takes only six-months’ cash-flows into account
- Banks not allowed to elongate “sustainable” part of loan
- Promoters against giving personal guarantees
2016
- June 13: RBI scheme allows banks to convert half the loan into “sustainable” and “unsustainable”. Sustainable loans were to be classified as NPAs
- June 15: Scheme can curb fresh NPA slippages but has flaws, warns CRISIL
- Jul 13: HCC is the first company to get debt relief under the scheme
- Jul 15: Scheme needs changes to work better, Assocham writes to RBI
- Oct 4: RBI says sustainable loans to not be classified as NPA