Which of the following statements best describes the term 'Scheme for Sustainable Structuring of Stressed Assets (S4A)', recently seen in the news?a)It is a procedure for considering ecological costs of developmental schemes formulated by the Government.b)It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.c)It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.d)It is an important provision in 'The Insolvency and Bankruptcy Code' recently implemented by the Government.Correct answer is option 'B'. Can you explain this answer?

Question

Answer

The S4A by RBI envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.

Answer

D

Answer

An independent agency is hired by the bank to assess the stressed assets/ stressed debts of a company, which decides it as how much if it is sustainable and can be continued as such and the rest(Unsustainable) are converted into equity shares without having to change the company ownership i.e there is no need to sell those to any bidder outside the company.

Answer

Scheme for Sustainable Structuring of Stressed Assets (S4A)

The correct answer is option 'B': It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

Overview:
The Scheme for Sustainable Structuring of Stressed Assets (S4A) is a scheme introduced by the Reserve Bank of India (RBI) in 2016. It aims to provide a framework for the resolution of large stressed assets of corporate entities facing genuine difficulties.

Key Points:
1. RBI's initiative: The S4A scheme is an initiative of the RBI to address the issue of stressed assets in the banking sector. It provides a mechanism to restructure the financial structure of large corporate entities that are facing genuine difficulties in servicing their debt.
2. Objective: The objective of the S4A scheme is to ensure that the stressed assets of companies are restructured in a sustainable manner, which will help them revive their financial health and continue their operations.
3. Eligibility: The S4A scheme is applicable to projects that have started commercial operations and have outstanding loans of over Rs. 500 crore from multiple banks or financial institutions.
4. Restructuring process: Under the S4A scheme, the existing debt of the stressed company is divided into two parts: sustainable debt and equity/quasi-equity instruments. The sustainable debt portion is the portion of the debt that can be serviced by the company based on its cash flows, while the equity/quasi-equity portion represents the remaining debt that is converted into equity or equity-like instruments.
5. Bank involvement: The S4A scheme requires banks to set up an independent oversight committee (IOC) to review the restructuring proposal and ensure its compliance with the scheme's guidelines. The IOC also monitors the implementation of the restructuring plan.
6. Debt classification: The S4A scheme allows the sustainable debt portion to be classified as standard debt, while the equity/quasi-equity portion is classified as equity or equity-like instruments. This classification helps in reducing the burden of non-performing assets (NPAs) on banks and allows them to recover their loans in a more sustainable manner.
7. Benefits: The S4A scheme provides a transparent and structured mechanism for the resolution of stressed assets, which promotes the financial stability of both the banking sector and the stressed companies. It helps in reducing the burden of NPAs on banks and facilitates the revival of companies facing genuine difficulties.

Thus, option 'B' is the correct answer as it accurately describes the Scheme for Sustainable Structuring of Stressed Assets (S4A) as a scheme introduced by the RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

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