The government and the Reserve Bank of India (RBI) could introduce a gradation system in loan restructuring to deal with bad debts. Bank would use all existing schemes like corporate debt restructuring (CDR), strategic debt restructuring (SDR) and the scheme for sustainable structuring of stressed assets (S4A) which are introduced so far by the central bank. An outside management consultant would be hired only to nurture the interest of the banks.

In the new system, Banks would get to act like aggressive private equity (PEs) players to recover dues. Banks are in talk with PEs and large corporates to partner with them to form a forum named as “Joint Lenders Forum” (JLF) to deal with the stressed assets. JLF would work towards protecting and maximising their interest, and also the provisioning (setting aside of money from profits to compensate a probable loss caused on lending a loan) is likely to be reduced from 25 per cent to 10-15 per cent. Banks and PE players would be solely focused on their interest in the loan and not the whole company. They would pick up a part of the bad debt and convert it into equity. Existing promoters would continue to be in the business. The lenders would try and sell assets from the business to recover their dues. If they decide the company can turn around, banks would offer their share first to the existing promoters.

The entire system would focus on improving the economy and would take care of the interest of all stakeholders.