The study should also establish that even if the company continued with its current cash flows, it would be able to service the principal amount of the sustainable debt. Banks are required to make provisions worth at least 20% of the overall debt or 40% of the unsustainable part, under this scheme. Due to this, the number of companies eligible for such a scheme will reduce. While banks have provided at least 15% in a few cases where stress had been identified under the RBI’s asset quality review, further provisioning would hurt them. Even as the banking industry sees the new provision as a positive, bankers also point to some inherent challenges that may crop up because of the way the guidelines have been framed.

Source: Mint June 14, 2016 04:18 UTC