The Strategic Debt Restructuring (SDR) has been introduced with a view to ensuring more stake of promoters in reviving stressed accounts and providing banks with enhanced capabilities to initiate the change of ownership, where necessary, in accounts that fail to achieve the agreed critical conditions and viability milestones.
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What is Strategic Debt Restructuring Scheme?
With rising non-performing loans (NPAs) or stressed loans of banks, the Reserve Bank of India (RBI) has come out with Strategic Debt Restructuring (SDR) scheme which will enable banks to recover their bad loans by converting the advances into equity and taking control of distressed companies. Conversion of outstanding debts can be done by a consortium of lending institutions known as the Joint Lenders Forum (JLF) which may include banks and other financial institutions
What is CDR?
Corporate Debt Restructuring (CDR) mechanism is a voluntary and nonstatutory mechanism using which the financial institutions and banks provide timely support to the companies who have availed loans but are unable to make the payment that was promised. These financial institutions help these companies by restructuring their debt.
The intention behind the mechanism is to revive such companies and also safeguard the interests of the lending institutions and other stakeholders.
How do banks restructure debt?
Banks restructure debt by reducing interest rates so that payment is made easier by the borrower. They also provide a facility of terminating a part of the debt in exchange for a portion of the equity of the company that has availed loans.
The debt restructuring arises when a company is on the verge of bankruptcy.
What is the S4A scheme?
The Sustainable Structuring of Stressed Assets (S4A) scheme is aimed at reducing the bad loans in the economy. This scheme aims at a deep level restructuring of giant financial projects that are stalled due to huge amounts of debts. This scheme allows the bank to acquire the equity of the stressed projects.