Government Measures to Tackle the NPA or, TBS Issue

Government Measures to Tackle the NPA or, TBS Issue

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

India has tried a variety of measures to address the NPA or TBS issue, which was previously detailed in another article. The Insolvency and Bankruptcy Code followed a similar course reiterating the key plans in the brief.

1. 5/25 Renovation of the Infrastructure Program - This plan gave the infrastructure sector and eight key industry sectors a wider window for the revival of stressed assets. In order to match the funding duration with the lengthy gestation and long productive lives of these projects, lenders were permitted to prolong amortisation periods to 25 years under this scheme, with interest rates changed every five years. Hence, the strategy attempted to raise borrowers' credit standing and liquidity position while letting banks account for these loans as standard on their balance sheets, which cut down on provisioning expenses.

Problems: Since the amortisation was extended out over a longer period of time, the enterprises had to pay a greater interest load, which they found challenging to repay, which necessitated banks extending further loans (a process known as "evergreening"). This has in turn made the original issue worse.

2. Individual ARCs or, Asset Reconstruction Companies - 2. Individual ARCs or, Asset Reconstruction Companies

The problem: ARCs have had trouble getting much money back from the borrowers. As a result, they have only been able to offer banks low prices, which banks have had trouble accepting.

3. SDR, or Strategic Debt Restructuring - The SDR plan, which allowed banks to resell nonpaying businesses to new owners, was established in June 2015.

The problem: The problem: By of December 2016, only two sales had actually occurred because many businesses were still not profitable.

4. AQR or, Asset Quality Review - The RBI put a lot of emphasis on AQR to make sure banks were classifying loans according to RBI guidelines. Any violations of such regulations had to be fixed by March 2016.

5. S4A or, the Scheme for Sustainable Structuring of Stressed Assets - The banks will commission a third party to determine the amount of a company's stressed debt that is sustainable. The remaining amount, which is unsustainable, will be changed into equity and preference shares.

The problem: Thus far, our technique has only been able to solve one situation.