Options Available to Banks for Stressed Assets

Stressed assets

Stressed assets are loans that are at risk of default. These assets are typically characterized by one or more of the following factors:

  • The borrower is experiencing financial difficulty.
  • The borrower has missed a payment on the loan.
  • The borrower’s collateral is declining in value.
  • The borrower’s business is in decline.

Options available to banks for stressed assets

There are a number of options available to banks for stressed assets, including:

  • Loan restructuring: This involves modifying the terms of the loan, such as extending the repayment period or reducing the interest rate.
  • Sale of assets: The bank may sell the stressed asset to another party, such as a non-performing asset management company (NPAMC).
  • Write-off: The bank may write off the stressed asset, which means that it will no longer be considered an asset on the bank’s balance sheet.
  • Joint lender forum: This is a forum where banks that have lent money to the same borrower can discuss and agree on a way to manage the stressed asset.
  • Strategic Debt Restructuring Scheme (SDRS): This is a scheme introduced by the Reserve Bank of India (RBI) in 2015 to help banks resolve stressed assets. Under the SDRS, banks can work with the borrower to restructure the loan and develop a plan to revive the business.
  • Sustainable Structuring of Stressed Assets (S4A) scheme: This is a scheme introduced by the RBI in 2020 to help banks resolve stressed assets. Under the S4A scheme, banks can transfer stressed assets to a special purpose vehicle (SPV) that will be managed by professionals. The SPV will then work with the borrower to restructure the loan and develop a plan to revive the business.

MCQs on options available to banks for stressed assets

  1. Which of the following is not an option available to banks for stressed assets?
    • Loan restructuring
    • Sale of assets
    • Write-off
    • Joint lender forum
    • Strategic Debt Restructuring Scheme (SDRS)
    The answer is Joint lender forum. Joint lender forum is not an option available to banks for stressed assets. It is a forum where banks that have lent money to the same borrower can discuss and agree on a way to manage the stressed asset.
  2. Which of the following is the most common option available to banks for stressed assets?
    • Loan restructuring
    • Sale of assets
    • Write-off
    • Joint lender forum
    • Strategic Debt Restructuring Scheme (SDRS)
    The answer is Loan restructuring. Loan restructuring is the most common option available to banks for stressed assets. This is because it is a relatively simple and inexpensive option that can help to improve the borrower’s ability to repay the loan.
  3. The RBI has set up a number of schemes to help banks resolve stressed assets. True or false?
    True. The RBI has set up a number of schemes to help banks resolve stressed assets, such as the Strategic Debt Restructuring Scheme (SDRS) and the Sustainable Structuring of Stressed Assets (S4A) scheme.