Reintroduce S4A-like Scheme For Correct Risk Assessment: NaBFID MD
National Bank for Financing Infrastructure and Development's (NaBFID) Managing Director, Rajkiran Rai G, has stated that there is a need for the reintroduction of the Scheme for Sustainable Structuring of Stressed Assets (S4A). He added that this would aid infrastructure finance in the future.
Rai mentioned, “Now, there is not even a single asset calling out for such help, but it is essential to have a facility that will enable the 'rightsizing of debt' to make it more sustainable.”
He emphasised that in the present system, none of the entities can exploit the S4A scheme by engaging in practices like evergreening of loans.
The Reserve Bank of India (RBI) introduced the S4A scheme in 2016 and halted it in February 2018. Debt was classified as sustainable and unsustainable based on the cash flows under the scheme. This procedure focused on corporate loans and had a threshold above which an account could qualify to be added to the scheme.
Rai added, "We need to consider the context in which it was introduced and how it was used. And now, we are talking in a totally different context," while advocating for the reintroduction of the S4A scheme.
The veteran banker, Rai, mentioned that there was a substantial pile of non-performing assets (NPAs) that the banking system was struggling with back then, whereas this situation is not the case now.
NPAs were also rising due to delays in environmental clearances for projects, court orders, and cancellations of mines, etc. He further stated that the S4A scheme was used to delay the recognition of an NPA and make provisions accordingly.
"During that time, the way we handled the scheme was not right. Doing away totally with that is not good.”
When asked about the infrastructure sector, Rai said, ‘100 per cent’ the scheme will benefit the infrastructure sector and gave a hypothetical example of how it could help.
A toll-way project where collections do not happen as per projections due to a solar project where the revenues go down due to climatic changes cropping up or things like a parallel road can be helped with the rightsizing of debt, he said.
He explained that rightsizing of debt can help ensure that the project continues to develop, and the bank loan is also serviced.
He said that the scheme is basically used to protect the value of the asset so that banks do not lose 100 per cent of the money, and banks will be prepared to take a 20 to 30 per cent hit, but at least the asset will be serviced.
If there is not something like the S4A scheme, then a bank will have to recognize an entire project as an NPA. This would stop the entire project, he said, adding that from then bankruptcy proceedings will be initiated, and a bank will get only 20 to 30 per cent from the resolution process.
When asked if he had raised the demand for having an S4A-like scheme during discussions with policymakers, he told there is an urgent need to initiate some sort of discussion on it keeping in mind the requirements of the future.
