Tough standards hamper India's NPL disposal efforts

Author: Brian Yap | Published: 9 Aug 2016

The Modi-led Indian government has made public debt containment a national priority but strict regulations have rendered banks even less capable of disposing of soured loans.

Most recently, in June, the Reserve Bank of India (RBI) introduced the Scheme for Sustainable Structuring of Stressed Assets (S4A), allowing banks to convert up to 50% of a company's debt into equity based on an assessment of the debt’s sustainability without having to change the promoter. But counsel in India dismiss as counter-productive the new scheme’s requirement that only loan-defaulting companies capable of servicing half their debt are eligible for the mechanism. 

"Although the scheme will be useful for some companies, it will likely have limited to no applicability for companies in serious distress," said Ashwin Ramanathan, partner at AZB & Partners in Mumbai. He added that feedback from market participants points to a lack of cash among...