Available Frameworks for Restructuring of Assets

Restructuring of assets

Restructuring of assets is a process by which the terms of a loan or investment are modified in order to make it more manageable for the borrower or investor. This can involve extending the repayment period, reducing the interest rate, or waiving certain fees.

Available frameworks for restructuring of assets

There are a number of frameworks available for restructuring of assets, including:

  • Bank-led restructuring: This is the most common type of restructuring. In a bank-led restructuring, the bank that holds the loan works with the borrower to develop a restructuring plan.
  • 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 available frameworks for restructuring of assets

  1. Which of the following is not a framework for restructuring of assets?
    • Bank-led restructuring
    • Joint lender forum
    • Strategic Debt Restructuring Scheme (SDRS)
    • Sustainable Structuring of Stressed Assets (S4A) scheme
    • Debt Recovery Tribunal (DRT)
    The answer is Debt Recovery Tribunal (DRT). Debt Recovery Tribunal (DRT) is not a framework for restructuring of assets. It is a forum where creditors can file a case against a borrower who has defaulted on a loan.
  2. Which of the following is the most common framework for restructuring of assets?
    • Bank-led restructuring
    • Joint lender forum
    • Strategic Debt Restructuring Scheme (SDRS)
    • Sustainable Structuring of Stressed Assets (S4A) scheme
    • Debt Recovery Tribunal (DRT)
    The answer is Bank-led restructuring. Bank-led restructuring is the most common framework for restructuring of 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.