an in in ndia 12.19
was seen in the economy diluting the ‘evergreening’). This in turn has aggravated the
capability of the borrowers to service the initial problem.
loans. ARCs (Asset Reconstruction Companies): ARCs
(ii) Delays in project approvals resulting into were introduced to India under the SARFAESI
high cost over-runs. This dented the loan Act (2002), as specialists to resolve the burden of
servicing capability of the borrowers in a NPAs. But the ARCs (most are privately-owned)
big way. finding it difficult to resolve the NPAs they
(iii) Aggressive lending by the banks to high purchased, are today only willing to purchase such
corporate leverage. loans at low prices. As a result, banks have been
(iv) High incidences of ‘wilful defaults’. unwilling to sell them loans on a large scale. Since
(v) Cases of loan frauds. (2014) the fee structure of the ARCs was modified
(vi) Instances of corruption in the banking (requiring ARCs to pay a greater proportion of
institutions. the purchase price up-front in cash to the banks)
Now, the Government has commenced a purchases of NPAs by them have slowed down
multi-pronged policy framework to resolve the further—only about 5 per cent of total NPAs were
NPA crisis faced by the public sector banks. sold during 2014-15 and 2015-16.
SDR (Strategic Debt Restructuring): In June
resolution of the nPAs 2015, RBI came up with the SDR scheme
At one hand, while the RBI tried to check the provide an opportunity to banks to convert
NPAs from rising by announcing new guidelines debt of companies (whose stressed assets were
for the banks, on the other hand, it has also taken restructured but which could not finally fulfil
several steps to ‘resolve’ the problem. By February the conditions attached to such restructuring) to
2017 (since 2014-15), the RBI has implemented 51 per cent equity and sell them to the highest
a number of schemes to facilitate resolution of the bidders—ownership change takes place in it.
NPAs problem of the banks—briefly discussed By end-December 2016, only 2 such sales had
below: materialized, in part because many firms remained
5/25 Refinancing: This scheme offered a larger financially unviable, since only a small portion of
window for revival of stressed assets in the their debt had been converted to equity.
infrastructure sectors and 8 core industries. AQR (Asset Quality Review): Resolution of the
Under this scheme lenders were allowed to extend problem of bad assets requires sound recognition
the tenure of loans to 25 years with interest rates of such assets. Therefore, the RBI emphasized
adjusted every 5 years, so tenure of the loans AQR, to verify that banks were assessing loans
matches the long gestation period in the sectors.
in line with RBI loan classification rules. Any
The scheme thus aimed to improve the credit
deviations from such rules were to be rectified by
profile and liquidity position of borrowers, while
March 2016.
allowing banks to treat these loans as standard in
their balance sheets, reducing provisioning costs S4A (Scheme for Sustainable Structuring of
against NPAs. However, with amortisation spread Stressed Assets): Introduced in June 2016, in it,
out over a longer period, this arrangement also an independent agency is hired by the banks which
meant that the companies faced a higher interest decides as how much of the stressed debt of a
burden, which they found difficult to repay, company is ‘sustainable’. The rest (‘unsustainable’)
forcing banks to extend additional loans (called is converted into equity and preference shares.