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S4A Scheme - (UPSC Notes for Indian Economy)

Scheme for Sustainable Structuring of Stressed Assets also known as S4A Scheme was launched on 13th June 2016 by the Reserve Bank of India as an initiative to address and resolve the debt issues of the corporate sector along with strengthening the ability of the lender to deal with stressed assets. As per the S4A scheme, the debt of a company is bifurcated into two parts namely sustainable and unsustainable debt based on the cash flows of the company’s project. The sustainable debt of a company should not be less than 50% of the existing debt and the unsustainable debt can be converted into optionally convertible debentures.

S4A Scheme is an important topic for the IAS Exam. This article will talk about the S4A Scheme in detail. Candidates can also download the notes PDF at the end of this article.

To know more about schemes similar to the S4A, visit the Government Schemes page now!!

The following links will help candidates immensely in the Economics segment of the UPSC Exams:

Aims of the S4A Scheme

Debt recovery and restructuring of strategic debt are some of the main concerns of many corporate companies. The Scheme for Sustainable Structuring of Stressed Assets was launched by the RBI to address the large stressed assets of the corporate sector.

The main aims of the S4A scheme are discussed below:

  • The scheme aims to provide financial restructuring of large debted projects by allowing the bank’s lender in acquiring equity of the stressed project.
  • To restore the credit flow to the critical sectors along with restoring the infrastructure.
  • To restore the issues faced by the real assets by providing an avenue for reworking financial structure.

Significance of S4A Scheme

Some of the major benefits provided by the S4A scheme are mentioned below:

  • The scheme helps the banks to speed up the asset recovery process and also to manage their NPAs. For the fiscal year 2015-16, the Non-Performing Assets (NPAS) has touched Rs. 6 lakh crore.
  • The S4A Scheme also provides another opportunity for the borrowers to rework its financial structure.
  • The scheme saves the banks from undue scrutiny through the oversight of an external Overseeing Committee (OC) which also ensures transparency. The endorsement of the OC is very important for the approval of any loan under the S4A scheme.

S4A Scheme- Key Features

Following are some of the main features of the S4A scheme:

  1. Under the S4A scheme, an account is considered eligible for restructuring if the total loans in the account by all the institutional lenders exceeds Rs. 500 crore which includes the rupee loans as well as the foreign currency loans.
  2. An independent agency is hired by the lending bank for evaluating sustainable debt.
  3. The projects that are under the S4A Scheme should have started their commercial operations and also allow the banks to take part in the stressed project.
  4. The scheme also protects bankers from undue scrutiny by allowing the banks to rework on stressed loans.
  5. One of the main features of this scheme is the test of sustainability as it allows the evaluation of the level of sustainable debt for a stressed borrower. Under the S4A scheme, the loans are divided into sustainable and unsustainable components.

Candidates can go through the following links to prepare for the upcoming UPSC Civil Services exams comprehensively-

Asset Reconstruction Companies (ARCs) in India Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act NPA Critical Challenge for Indian Banking Sector
Capital Adequacy Ratio (CAR) Bad Banks – Idea Proposed by Indian Banking Alternate Investment Funds (AIF)
Types of Banks in India Types of Bonds Venture Capital and Private Equity
Mission Indradhanush for PSBs K.V. Kamath Committee on Loan Restructuring Investment Models: Importance
Enemy Property Leverage Ratio Economic Contagion/Financial Contagion

Limitations of S4A Scheme

The limitations of the S4A scheme are mentioned below:

  • One of the major limitations of the S4A scheme is that it is only applicable for operational projects and not for the projects that are under construction.
  • The entities belonging to the vulnerable sectors have a low level of cash flows and as such, are not able to service a sustainable part of the debt with their current cash flows.
  • This scheme also does not allow any rescheduling of the original tenure for repayment of debt.

Difference between S4A scheme and Strategic Debt Restructuring SDR Scheme  

  • Under the S4A Scheme, banks would be to allow existing promoters to continue in the management even while being a minority shareholder. Whereas in the case of SDR, the promoter is delinked and ownership is changed.
  • In the S4A Scheme, the lenders also have an option of holding optionally convertible debentures instead of equity, which might be the more preferred option. But in the case of SDR, only equity holding is allowed.
What is Strategic Debt Restructuring (SDR)?

The Strategic Debt Restructuring (SDR) is an attempt to revive stalled projects by giving equity participation to banks in such projects. Converting debt to equity is the main approach under the SDR.

Read more about the Strategic Debt Restructuring (SDR) scheme on the linked page.

S4A scheme is an important scheme launched by the Reserve Bank of India and forms an important part of the UPSC Syllabus.

S4A scheme (UPSC Notes):- Download PDF Here

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