×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Total number of CDR cases sees a sharp rise

Total number of CDR cases sees a sharp rise
Comment E-mail Print Share
First Published: Sun, Aug 29 2010. 09 40 PM IST
Updated: Sun, Aug 29 2010. 09 40 PM IST
New Delhi: To avoid having to deal with a rash of bankruptcies, institutional lenders are stepping up the referral of delinquent company loans to the Reserve Bank of India for corporate debt restructuring (CDR).
Recent data reveal the CDR system, which allows lenders to seek a repayment solution before a company weighed down by debt of more than Rs10 crore goes bust, was dealing with 266 cases at the end of July, up from 239 a year earlier.
In the same period, aggregate debt being restructured rose from Rs108,823 crore to Rs118,632 crore.
These figures include CDR applications that have been withdrawn, exited from restructuring or merged (due to multiple applications involving the same borrower). The total number of CDR cases that have been approved for consideration, which includes cases that are up to five years old, is 216.
In the previous two fiscals, the industry that received the most CDR attention was textiles, which is now third on the list. The sector has seen an increase in the amount of distressed debt from Rs3,521 crore last year to Rs8,902 crore.
Firms across the Indian industrial landscape have been hit by slow fund-raising in the first half of this calendar year and 2009, says Ravi Singhvi, an associate at Bain Capital Llc.
“There was much more optimism in the markets in 2007-08, and a lot of money was lent to companies seeking funds. This capital dried up in subsequent years, and the slowdown in 2009 may have led to this rise in the number of companies seeking bankruptcy protection,” says Singhvi.
Besides, at the policy level, the government is encouraging banks to release capital locked up in non-performing loans (NPLs), says Abizer Diwanji, head of financial services at KPMG.
“Banks are being pressurized to deal with their gross NPL numbers—otherwise this debt would just sit on their books—or they would restructure the loan at a local level rather than addressing the performance issues the troubled company was facing. Once debtors and lenders enter into CDR, the debt no longer qualifies as an NPL, it is counted as a restructured loan. What’s more, all the lenders to a single company come to a coordinated agreement overseen by the CDR cell,” said Diwanji.
As a result of rising awareness of restructuring procedures among lenders, many public sector banks are seeing sense in reworking NPLs, rather than hiding the true level of subprime loans on their books—adding to the rise in application numbers—even at the cost of a haircut (the portion of a loan that’s written off by a lender).
The core members of the CDR cell includes senior bankers from IDBI Bank Ltd (who currently head the committee), ICICI Bank Ltd, State Bank of India, Bank of Baroda, Punjab National Bank and the Bank of India who pay a set membership fee in order to be part of the committee.
No foreign bank has taken up membership yet although they have participated in CDR by paying a one-off fee on occasions.
The industry has in general responded well to the CDR mechanism, which looks for forward-looking solutions to assess whether a business has value and can still make money, says Amit Gupta, founder, Coralbay Advisors Pvt. Ltd.
It is on this basis that an application is approved. Once cleared for a rescue, a standstill by the CDR body is issued during which period lenders cannot file a court case against borrowers who, in turn, pay no interest on loans while a bailout is under way. Once a solution is agreed to, it must be approved by 75% of the lenders and the restructuring is completed.
This mechanism is in sharp contrast to other bankruptcy protection processes which would only be triggered when a company’s debt became completely unrecoverable, and when the promoter would be staring at certain bankruptcy.
Gupta of Coralbay Advisors says the CDR mechanism is possibly the most efficient and user-friendly mechanism in place to help companies that can be rescued emerge from sticky situations—which might arise from internal issues as well as due to commodity and business cycles as the Indian economy becomes increasingly globalized.
S.S. Kantharoopan, assistant general manager at the CDR cell, says the flow of cases to the CDR is largely dependent on the state of the economy.
“In 2002-03 nearly all cement companies were defaulting but now they are doing well,” he said.
So far no IT firm has approached the CDR cell for a debt recast, while the number of retail companies, says Kantharoopan, has been surprisingly low.
divya.g@livemint.com
Comment E-mail Print Share
First Published: Sun, Aug 29 2010. 09 40 PM IST
More Topics: CDR | Ravi Singhvi | KPMG | IDBI Bank | ICICI Bank |