- News>
- Finance & Markets
Bankers design tough debt recast package
Mumbai, May 07: Bankers have designed a stricter debt restructuring package for corporates who have diverted loans, did not fulfil their commitments or indulged in financial indiscipline. This was decided by the empowered group of Corporate Debt Restructuring (CDR) - a forum of commercial banks for resolving bad loans.
Mumbai, May 07: Bankers have designed a stricter debt restructuring package for corporates who have diverted loans, did not fulfil their commitments or indulged in financial indiscipline. This was decided by the empowered group of Corporate Debt Restructuring (CDR) — a forum of commercial banks for resolving bad loans.
The decision will segregate genuine borrowers from wilful defaulters. “The CDR package would be different for genuine borrowers whose projects have suffered due to external factors like liberalisation or a recession. But it could be stringent for those corporates who have engaged in financial indiscipline,” said Siby Antony, the IDBI chief general manager, a key member in the CDR forum. As on March ‘03, the CDR group has restructured 82 cases with total debt of Rs 62,519 crore. Of this, 42 cases have been implemented for debt amounting to Rs 36,000 crore.
The stringent norms applicable for wilful defaulters will include promoters pledging at least 51% or their entire equity holding with lenders, as against 26% for genuine borrowers. Other conditions will include lenders right to appoint a chairman, director-finance and auditors. Significantly, such wilful defaulters will be required to bring back the diverted funds.
The development could be a prelude to foreign banks joining the CDR forum. Most foreign banks have listed large number of defaulters as wilful defaulters. However, as per the RBI norms, companies that are listed as wilful defaulters cannot be referred to the CDR forum. Since so far foreign banks were not part of CDR, the CDR group allowed public and private sector banks to refer cases (which foreign banks referred to RBI as wilful defaulter) at the forum under the pretext that none of the CDR members have identified them as wilful defaulters. But while CDR’s move could end dispute between foreign banks and the forum, it could make it difficult for the CDR group to resolve hundreds of cases that foreign banks have already registered as wilful defaulter with RBI.
“The CDR group is of the view that the promoter who have contributed to the failure of the project should not be allowed to get away easily but at the same time other stake holders should not suffer due to the mis-management of promoters,” said Antony. Bureau Report
The stringent norms applicable for wilful defaulters will include promoters pledging at least 51% or their entire equity holding with lenders, as against 26% for genuine borrowers. Other conditions will include lenders right to appoint a chairman, director-finance and auditors. Significantly, such wilful defaulters will be required to bring back the diverted funds.
The development could be a prelude to foreign banks joining the CDR forum. Most foreign banks have listed large number of defaulters as wilful defaulters. However, as per the RBI norms, companies that are listed as wilful defaulters cannot be referred to the CDR forum. Since so far foreign banks were not part of CDR, the CDR group allowed public and private sector banks to refer cases (which foreign banks referred to RBI as wilful defaulter) at the forum under the pretext that none of the CDR members have identified them as wilful defaulters. But while CDR’s move could end dispute between foreign banks and the forum, it could make it difficult for the CDR group to resolve hundreds of cases that foreign banks have already registered as wilful defaulter with RBI.
“The CDR group is of the view that the promoter who have contributed to the failure of the project should not be allowed to get away easily but at the same time other stake holders should not suffer due to the mis-management of promoters,” said Antony. Bureau Report