Strategic Debt Restructuring

Strategic Debt Restructuring

With rising non-performing loans (NPAs) or stressed loans of banks, the Reserve Bank of India (RBI) has come out with a 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.

    The leading problem in the financial sector in India is the NPAs of the Public Sector Banks. One of the few steps the RBI has taken to tackle the problem is the Strategic Debt Restructuring (SDR) Scheme. Under SDR, banks that have provided loans to corporate borrowers can get the right to convert full or part of their loans into equity shares of the company.

    The scheme, which the RBI introduced in June 2015, helps banks recover their loans by taking control of the companies.

    Major Features of SDR Scheme include the following:

  • At the time of initial restructuring, the Joint Lenders Forum (JLF) must incorporate an option to convert the entire loan (including unpaid interest), or part thereof, into shares of the company in the event the borrower is not able to achieve the desired conditions as stipulated in the restructuring package.
  • The Provisions of SDR apply to the accounts when the necessary clauses include the agreement between the banks and borrowers;
  • Invoking the SDR by converting either the entire loan into equity shares or part of it should be taken by the JLF. The decision is documented and approved by the majority of the JLF members.
  • To achieve change in ownership, lenders must collectively become the majority shareholder by conversing their dues from the borrower to equity.