Previous Year Question
Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news?
It is a procedure for considering the ecological costs of development schemes formulated by the Government.
It is a scheme of the RBI for reworking the financial structure of big corporate entities facing genuine difficulties.
It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.
It is an important provision in the Insolvency and Bankruptcy Code recently implemented by the Government.
Correct Answer: B
Detailed Solution
The Reserve Bank of India introduced the Scheme for Sustainable Structuring of Stressed Assets (S4A) on 13 June 2016 to resolve the debt of large stressed corporate entities. Therefore, option (b) is correct.
The scheme could be applied to projects that had commenced commercial operations but whose borrowers were unable to service their entire existing debt. Its principal provisions were:
The aggregate exposure of all institutional lenders, including accrued interest, had to exceed ₹500 crore.
Based on an independent Techno-Economic Viability (TEV) study, lenders determined how much debt could be serviced from the borrower’s existing and projected cash flows.
The total debt was divided into two parts:
Part A—Sustainable Debt: The portion that could be serviced from existing cash flows.
Part B—Unsustainable Debt: The remaining portion, which could be converted into equity, Redeemable Cumulative Optionally Convertible Preference Shares or other suitable instruments.
Sustainable Debt was generally required to constitute at least 50% of the total funded liabilities.
The objective was not merely to postpone repayment but to align the company’s debt structure with its actual debt-servicing capacity.
It was neither a procedure for calculating ecological costs nor a government disinvestment plan or a provision of the Insolvency and Bankruptcy Code.