Mumbai: A worldwide slowdown and India’s economic downturn have begun to take their toll on domestic firms, with a nascent spike in companies, primarily in the textiles business, asking for loans to be restructured.
As a result, some 12 companies have asked the corporate debt reconstruction (CDR) departments of banks to help restructure their loans. And bankers say they expect more companies, including auto manufacturers, software, commodities and shipping firms, to approach CDR cells with similar requests.
Spentex Industries Ltd, Maral Overseas Ltd (part of the LNJ Bhilwara Group), Gangotri Textiles Ltd, Soma Textiles and Industries Ltd and Indo Count Industries Ltd are among the firms that have been admitted under the CDR mechanism.
“Our case was admitted under the corporate debt reconstruction mechanism on 10 September,” said Amrit Agrawal, director (finance) of Spentex. “We have asked for a reschedulement of the loan package. The company has asked for another 18 months to pay back the Rs300-crore term loan availed from 12 banks. State Bank of India, ICICI Bank Ltd, State Bank of Indore, Oriental Bank of Commerce are the main bankers.’’
The CDR mechanism became operational in India from March 2002 after the Inter-Creditor Agreement was signed on 25 February, involving 47 lenders from banks and financial institutions such as the Industrial Development Bank of India and the Industrial Finance Corp. of India, as they were known then.
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CDR is aimed at facilitating a timely and transparent mechanism for restructuring of corporate debts outside the purview of the Board for Industrial and Financial Reconstruction, the debt recovery tribunals and other legal proceedings.
It is designed to facilitate restructuring of loans of borrowers enjoying credit facilities from more than one bank or financial institution (FI) in a coordinated manner.
This mechanism is available to all borrowers engaged in any type of business as long as they have credit facilities with more than one bank and FI. The total exposure should be at least Rs10 crore.
“CDR has helped textile, steel and cement companies to do well. To admit a case to CDR, 75% of the lenders have to agree,” said a senior official from Axis Bank Ltd, who didn’t want to be named.
Large companies such as Essar Steel Ltd, JSW Steel Ltd and Ispat Industries Ltd, all unable to repay their interest and loan principal, were admitted to CDR in 2000 as they were unable to sell their products above their cost of production. Essar Steel and JSW have repaid their loans and are out of CDR.
“We cleared nearly Rs25,000 crore of CDR loans by May 2008,” said a banker, since retired from IDBI, who added that until recently, thanks to the economic boom, there were no new cases for CDR to deal with.
“Many companies have built capacity in anticipation of demand when the Indian economy was predicted to expand over 8%. They have acquired companies overseas and have borrowed heavily from banks to meet demand for their products. The mismatch in demand and supply has affected their capacity to service debt,’’ said a senior official from IDBI Bank Ltd, who is not authorized to speak to the media and so didn’t want to be named.
“Textile companies are facing hardship since the cotton and crude oil price, which is a main input, have been on a rise. The dip in the yarn prices has also been worrisome. The instability in financial markets, particularly in the foreign exchange markets, have also affected the health of textile companies,’’ added Agrawal of Spentex.