October 5, 2022

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Strategic Debt Restructuring (SDR) Scheme- The Beginner’s Guide

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Strategic Debt Restructuring

Due to the rise ofNon-performing Assets (NPA), Indian banks are witnessing slowing down of Indian economy and high interest cost. RBI has taken steps to control NPA, Joint Lenders Forum (JLF), SARFESI, etc. For this RBI introduced Strategic Debt Restructuring (SDR).

Strategic Debt Restructuring (SDR) scheme launched by RBI in June 15, enables banks who have given their loans to cooperates, to convert their full outstanding loan amount into shareholding equity.

SDR is an initiative that can be taken by group of banks or Joint Lender Forum (JLF). They should take the decision to use the SDR Scheme by transforming loan into equity. Joint Lender Forum(JLF) is a committee formed of the entire bankers who have given loans to a particular defaulted entity.

Now, banks can form JLF committee if the borrower account is mentioned as Special account (that is, if the money is not paid back in last 60 days). This scheme gives more power to the banks during the management of the company, as who has taken the loan but defaulted to pay. SDR scheme was later modified by RDI to give a correct shape.

Advantages of Strategic Debt Restructuring (SDR) scheme:

  • Stakeholders – The SDR Scheme provides benefits to stakeholders as the banks takeover the companies which are into debts to improve its
  • Operations and to sell it afterward. This will increase in cash flow and capitalization of the company.
  • Opportunities for consultants –The SDR Scheme provide opportunities for consultants to monitor the company’s performance. When the banks take charge of the defaulter’s company they have to assess, evaluate and sell their stake in 18 months after managing the company so as to classify its debt to standard, which becomes difficult to the lenders and have to depend on outside agencies to make this easier, this is when consultants come in view.
  • Financial institutions –The SDR scheme is profitable to banking and financial institutions as they have lent their money to companies that are not able to repay. High NPA interest have affected the Indian banks, this is when SDR regime will help such banks to take control of defaulter entity and sell it to new promoters in 18 months. This opportunity will help banks by recovering their advances.
  • Merger & Acquisition – There is an intensifying merger and acquisition increase when you sell a company under the SDR Scheme. Due to heavy debts, many companies who are debt are looking for SDR scheme for their revival. Major part of the companies is trying to grow inorganically to stay in the competition. These companies may show their interest to grow financially.

Features of Strategic Debt Restructuring (SDR) Scheme:

  • The Joint lender forum (JLF) must include an option to convert the full or part of the loan, into the shares in the company if the borrower is not able to achieve the conditions as mentioned in the restructuring, at the time of initial restructuring.
  • SDR provision scheme would also be available fortheaccounts, if necessary, clauses are mentioned in the agreement between banks and borrower.
  • The decision of converting full or part of the loan into share should be taken by JLF, the decision should be taken by majority of JLF and further approved and documented.
  • In order to change the ownership, JLF member under the lender should become the majority shareholder by converting their due into equity.

  • The main aim of Strategic Debt Restructuring (SDR) is to see that there is more stake of promoters to revive stressed accounts and provide banks more opportunities to initiate change of ownership to those accounts which fail to

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