Alok Industries’ sustainable debt is slightly less than 50 per cent of the firm’s total debt. This makes the company unfit for invocation of the Scheme for Sustainable Structuring of Stressed Assets (S4A) in its present form. Lenders can invoke the S4A only in companies where 50 per cent of borrowings are sustainable or can be serviced by current cash flows. Bankers are now betting on the RBI to announce certain relaxations in the S4A that would make Alok Industries eligible for invocation of the scheme.

The S4A can be invoked only in stressed accounts that have commenced commercial operations and have a total debt of at least Rs 500 crores. Alok’s sustainable debt is Rs 10,800 crores. With banks not being able to make much headway with the S4A, and in many cases sustainable debt falling just short of the mandated 50 per cent mark, the RBI is likely to tweak its guidelines.

The rules might be diluted so that the sustainable portion of the debt need not be 50 per cent of the total. However, that would require lenders to convert more than 50 per cent of the existing debt into redeemable cumulative optionally convertible preference shares.