Providing the best protection for your company is quite a struggle today. There is a new Scheme for Sustainable of Stressed Assets that is made in order to deal with the problems of loans to the large projects. With this technique the lenders are protected and it is decided whether the loan can be approved or not. It was made in order to fight the bad debts of the banks. Among the companies that are protected are the strategic debt restructuring, asset reconstruction and other strategic and recovery companies. The Scheme is called S4A (Scheme for Sustainable of Stressed Assets).
The debt is converted into equity and it is the main approach of the Debt Restructuring strategy. The main aim of this framework is to allow the lender to have justice in the stressed project by helping in the dealing of the stress assets.
Main features of S4A (Scheme for Sustainable of Stressed Assets)
• In order account to be qualified the total loan should not exceed 500 crore, including rupee or other foreign currencies.
• The project needs a cash flow from the beginning, which means the commercial operations in the project need to be done.
• An independent agency needs to be hired in order to estimate the amount of debt that is sustainable.
• The loans need to be divided into unsustainable and sustainable.
• The project needs to give the allowance to the banks in order to have quality participation in the project.
• It allows the banks to revise the approved loans by a third external party, so the bankers are protected in the whole lending process.
• It also gives the right to the banks to provide large provisions from the waiting period when the loan will be returned completely.
Differences between S4A scheme and the Strategic Debt restructuring scheme
– The S4A scheme allows the presence of an existing promoter in the management process.
– The SDR scheme does not allow any type of promoter; the ownership is changed immediately if a shareholding is being established.
What is the techno-economic viability of S4A?
– This is a study made by the bank where the consortium of lenders should decide whether the loan is acceptable to be given or not.
– The sustainable debt shouldn’t be less than the 50% of the all debts and need to have some future cash flow.
What are the advantages of S4A scheme?
– The banks can manage their NPAs and will be able to fasten the recovery process.
– The people who are borrowing the money will get the chance to revise the financial structure again.
– The presence of an external agency provides the transparency of the company and the security that the loans will be returned.
– This scheme also allows the borrowers to extend the return period, which means more provision is taken.
How the S4A scheme addresses the challenges?
– This scheme allows the banks to convert the unviable portion of the dept into equities and the banks here do not need to find another person to buy the services within the provided loan period.
– It allows longer turn and more benefits for the banks.
– The S4A is more preferred by the customers than SDR since the majority of the clients’ benefits from the services of the first scheme.
What are the limitations of S4A?
– Certainly there are some disadvantages or limitations in using this scheme and this includes that this scheme can only be applied to some operational projects, not to any type of project that is under creation.
– A lot of the entities might not be able to give the proper service with the current cash flow.
– The number of loans that could have some benefits from the scheme will be decreased, not to say low, since the cash flow is weak on some sectors like steel or iron.
– With the S4A scheme is not allowed any rescheduling of the date of payment of the debt.
– Since the scheme allows involving an external agency to work in the management process, this might slow down the whole process.
– The banks will not have the chance to extend their support in the debt payment procedures.
With the introduction of the S4A scheme the banks are offered the chance for better flexibility in the stressed assets and makes reviews of the individuals at different levels.
The lender is monitored and protected with the scheme, so gets the return of the loan within the provided period of time.
It is certain that the scheme has few disadvantages and limitations, but it is the best framework for providing security to the lenders.
The scheme also allows making disclosures that need to be done under observation within the time specified by the lender company.