Rajkiran Rai G, the Managing Director of the National Bank for Financing Infrastructure and Development (NaBFID), has advocated for the re-introduction of the Scheme for Sustainable Structuring of Stressed Assets (S4A). This move is aimed at aiding the future of infrastructure finance.
Introduced by the Reserve Bank of India (RBI) in 2016 and concluded in February 2018, the S4A scheme was designed to address the issue of stressed assets. It involved splitting debt into sustainable and unsustainable parts based on cash flows. This scheme primarily targeted corporate loans and established a threshold for an account to qualify.
Rai emphasized that while currently there are no assets requiring this kind of assistance, it is crucial to have a facility that allows for the “rightsizing of debt,” making it more sustainable. He also noted that the current system prevents the exploitation of the S4A scheme, such as the evergreening of loans.
Reflecting on the past use of the S4A scheme, Rai pointed out that during its initial phase, the banking system was burdened with a significant amount of non-performing assets (NPAs). These NPAs often resulted from court orders, delays in environmental clearances, and the cancellation of mining projects, among other reasons. The banking sector utilized the scheme to delay recognizing a non-performing asset and to make provisions accordingly.
Rai provided examples to illustrate how the re-introduction of the S4A scheme could benefit infrastructure projects facing financial difficulties, such as toll-way projects with lower than expected collections or solar projects impacted by climatic changes. He argued that rightsizing the debt in these cases could ensure the continuation of the project and the servicing of the bank loan. This approach is aimed at protecting the value of the asset, allowing banks to absorb a partial loss while ensuring the asset remains operational.
Without a scheme like S4A, banks would be forced to classify an entire project as a non-performing asset, leading to the initiation of bankruptcy proceedings and potentially resulting in banks recovering only a fraction of the loan amount.
Rai has called for discussions with policymakers to consider the re-introduction of the S4A scheme, especially in anticipation of potential economic downturns in the future. This proactive measure is seen as a way to prepare for and mitigate the impacts of such downturns on the infrastructure sector and the broader economy.
These insights reflect Rai’s long experience in the banking sector, including his previous role as the head of the state-run Union Bank of India before joining NaBFID.