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Re-Introduce S4A Scheme To Help Infrastructure Finance In Future, Says NaBFID MD

By PTI December 25, 2023

NPAs were also arising out of court orders, delays in environmental clearances for projects, cancellation of mines, etc

Re-Introduce S4A Scheme To Help Infrastructure Finance In Future, Says NaBFID MD
There was a huge pile of NPAs that the banking system was saddled with back then, whereas the same is not the case now. Shutterstock
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The National Bank for Financing Infrastructure and Development's (NaBFID) managing director, Rajkiran Rai G, has said there is a need to re-introduce the Scheme for Sustainable Structuring of Stressed Assets (S4A) scheme to help infrastructure finance in the future.

Rai said at present, there is not a single asset calling out for such help, but it is essential to get a facility that will enable "rightsizing of debt" and make it more sustainable. He also said that given the present system, no entity can exploit the S4A scheme by indulging in things like the evergreening of loans.

The RBI introduced the S4A scheme in 2016 and ended it in February 2018. Debt was split into sustainable and unsustainable categories based on cash flows under the scheme, which was focused on corporate loans and also had a threshold above which an account could qualify.

"We need to see the context in which it was brought and how it was used. And now we are talking in a totally different context," Rai told PTI, pushing for the introduction of the S4A scheme.

The veteran banker, who joined the National Bank for Financing Infrastructure and Development (NaBFID) after heading the state-run Union Bank of India, said there was a huge pile of NPAs that the banking system was saddled with back then, whereas the same is not the case now.

NPAs were also arising out of court orders, delays in environmental clearances for projects, cancellation of mines, etc., he said, adding that the banking system used the scheme to delay recognising a non-performing asset and make provisions accordingly.

"That time, the way we handled it was not right. Doing away totally with that is not good. So, right now, we may need it," he said.

When asked if the infrastructure sector will benefit from the re-introduction of S4A, Rai said "100 percent" and gave hypothetical examples of how it can help. A toll-way project where collections do not happen as per projections due to things like a parallel road cropping up or a solar project where the revenues go down due to climatic changes can be helped with the rightsizing of debt, he said.

It may be a case of merely a shortfall in revenues leading to challenges in servicing the full debt, he said, explaining that a rightsizing of debt can help ensure that the project goes on and the bank loan is serviced.

"It is basically to protect the value of the asset so that banks don't lose 100 percent of the money. Banks will be prepared to take a 20–30 percent hit, but the asset will be serviced," he said.

If a S4A-like scheme is not there, a bank will have to recognise an entire project as a NPA, thus killing the entire project, he said, adding that bankruptcy proceedings will be initiated and a bank will get only 20–30 percent from the resolution process.

When asked if he has raised the demand for having a S4A-like scheme during meetings with policymakers, he said there is a need to initiate some kind of discussion on it, keeping in mind the requirements of the future, where we will definitely be facing an economic downcycle.

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