BackCDR cell takes steps for early resolution of stressed assets
Cell undertaking regular reviews of loans under restructuring in order to make process more effective
Premium(As of 30 June, the CDR cell was overseeing the restructuring of bad loans worth `3.5 trillion, according to the cell’s website.)
Mumbai: The corporate debt restructuring (CDR) cell is undertaking regular reviews of loans under restructuring in order to make the process more effective, CDR cell chairman R.K. Bansal said.
“It helps us in weeding out weaker cases where there is a problem in implementing the restructuring package while also helping us in finding out successful cases which can pay up and exit the cell early," Bansal said in an interview on Saturday. The idea behind the exercise, he added, is to ensure early resolution of stressed assets which have been building up across the banking system.
As of 30 June, the cell was overseeing the restructuring of bad loans worth ₹ 3.5 trillion, according to the cell’s website. Referrals to the cell increased to ₹ 4.3 trillion worth as of 30 June, compared with ₹ 2.67 trillion as of 31 December 2012 because of a jump in the amount of stressed assets in the banking system.
While the number of cases referred to the cell have fallen this fiscal year, the cell is still grappling with past cases, many of which have exited the cell unsuccessfully. Of the ₹ 3.5 trillion worth of loans approved for restructuring by the CDR cell as of 30 June, 130 cases worth ₹ 38,686 crore exited because of failure while 75 cases with loans worth ₹ 58,205 crore exited after successfully completing the exercise, the cell said on its website.
“The bankers meet only once or twice a month at the CDR cell, so it is difficult to keep a tab on all cases at all times. These measures will make sure that we are better informed about the status of the restructuring packages. It will also help bankers in focusing on successful cases and getting rid of problem assets," said a senior executive at a public sector bank, referring to the CDR cell’s decision to review cases regularly.
In the first five months of the current fiscal year, at least four large cases including Bharati Shipyard, Hotel Leelaventure Ltd, Electrotherm Ltd and SBQ Steels Ltd, with a cumulative loan amount of ₹ 14,000 crore have exited the CDR cell on account of failure of the agreed restructuring package.
Also, the cell is making promoters pay up their share of equity before implementation of the package, rather than the earlier practice of allowing them to make payments over a period of time. “This will ensure that the promoters are serious about the restructuring package. Moreover, we are asking them to bring in 25% of the bank sacrifice, as compared with the regulatory requirement of 20%," Bansal added.
As per the revised guidelines on restructuring of assets announced by the Reserve Bank of India (RBI) on 30 May 2013, promoters’ financial sacrifice and additional funds brought in by them should be equal to a minimum of 20% of the amount sacrificed by banks or 2% of the restructured debt, whichever is higher.
The term “bank’s sacrifice" means the amount of “erosion in the fair value of the advance", RBI said, adding that these are minimum requirements and that banks are free to charge promoters more as per the risk involved in the restructuring. The guidelines were framed in such a way as to ensure that promoters had more skin in the game.
Experts believe that timely reviews and the insistence of the cell on following guidelines will ensure that the restructuring process does not stretch out.
“A review of cases on the basis of implementation of restructuring package is a good development, but it is also essential that the cell look at the developments in a company on a micro level. The earning projections made by the banks before approving a borrower’s recast package need to be more realistic. For that, bankers need to be more aware of the borrower’s business," said Nirmal Gangwal, managing director, Brescon Corporate Advisors Ltd, a firm that specializes in turnaround and restructuring services.
Asset quality concerns have plagued the banking sector over the past couple of years, as a slump in the economy and delays in project approvals led to a rise in bad loans. As of 30 June, gross non-performing assets (NPAs) of 40 listed banks stood at ₹ 2.52 trillion, up 21% from ₹ 2.08 trillion a year ago. Across the industry, gross NPA ratio increased from 2.4% in March 2011 to 4.4% in December 2013, before declining somewhat to 4.1% in March 2014, the RBI said in its annual report for 2013-14. But if the accounts which are being restructured either bilaterally or through the CDR cell are added, the overall stressed assets account for 10% of total loans.
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