Question
Regarding RBI’s initiatives to manage stressed
assets, match the following: A) 5:25Â Â Â Â Â Â Â P) Unviable portion of debt can be converted into equity B) SDRÂ Â Â Â Â Â Â Q) Long term debt with periodic cash flow refinance C) S4AÂ Â Â Â Â Â Â Â R) Bank to take majority stake in the stressed company D) PCAÂ Â Â Â Â Â Â Â S) Trigger points are CRAR, NPA, RoA and LeverageSolution
The 5:25 scheme allows banks to extend long-term loans of 20-25 years to match the cash flow of projects, while refinancing them every 5 or 7 years. Under SDR, banks who have given loans to a corporate borrower gets the right to convert the full or part of their loans into equity shares in the loan taken company. While RBI’s earlier ideas to resolve bad loans such as Strategic Debt Restructuring (SDR) required banks to oust existing promoters, S4A allows the incumbent management to continue, as long the default isn’t wilful. Prompt Corrective Action is a system of RBI under which it can initiate a corrective action in case of a bank which is found to be having low capital adequacy or high Non-performing Assets. These are called Trigger Points. RBI takes such action when Capital Adequacy Ratio goes down to less than 9% and Non-Performing Assets go up to more than 10%. Further, if return on assets us below 0.25%; this also serves as a trigger point to Prompt Corrective Action.
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