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.