Post on 02-Jan-2022
Management of stressed assets through Corporate Debt Restructuring (CDR) mechanism.
Santosh RamaswamyCDR Cell November 23, 2013
The GenesisNeed for evolving a mechanism for addressing
stress on bank assets due to external reasons in the economy and also some internal reasons.
Need for a formal, transparent & structured approach in a multi-lender environment.
Need to preserve stakeholder value.
Legal Basis
CDR is a voluntary, non-statutory body. A system based on Debtor Creditor Agreement (DCA) and Inter Creditor agreement (ICA). DCA & ICA provide the legal basis to the CDR mechanism.
ObjectivesProvide timely and transparent mechanism to
restructure corporate debts of viable entities.
Minimize losses to Banks and other interested parties on account of avoidable company failures.
Pre-empt companies being put to unnecessary liquidation.
Prevent failure on the part of Banks to restructure for want of agreement among themselves.
The EvolutionCDR mechanism put in place by RBI in August 2001
Eligibility: Corporates with exposure of Rs.20 crore and above.
Secured creditors with minimum 20% share in either WC or TL can refer a case to CDR.
75% of secured creditors by value agreeing to restructuring will be binding on the rest.
The Evolution (contd..)February 2003 – High Level Group – Mr Kamesan
Two Categories of borrowers: Category I (Standard & Substandard A/cs) and Category II (Doubtful A/c’s).Exit option built in.Deb to equity conversion.
November 2005 – Special Group – Mrs Shyamala GopinathReduction of eligibility to outstanding exposure of Rs.10 crore.Support of 60% of creditors by number in addition to 75% by
value.
The Evolution (contd..)On August 27, 2008 RBI issued a comprehensive circular on CDR superseding all earlier guidelines
Non–statutory mechanism based on ICA & DCA with “Stand still” clause and penal provisions built in.
Viability should be determined by banks –parameters included ROCE, DSCR, Gap in IRR and cost of funds, Sacrifice, etc.
Restoration of asset classification and upgradation on satisfactory performance.
Allowing conversion of principal into debt instruments / equity.
CDR STANDING FORUM & CORE GROUPGeneral Body of all members represented by their Chairman.Self empowered body to lay down policies and guidelines.Can review individual decisions of the CDR Empowered Group The Forum to meet once in six monthsCDR Core Group carved out of the Forum comprising Chairman of IDBI, ICICI, SBI, PNB, BOB and BOI. CDR Core Group takes policy related decisions on behalf of the Forum.
CDR Empowered Group (EG)CDR EG consists of ED level representative of IDBI, ICICI and SBI as standing members, in addition to all other members. CDR EG to decide on restructuring of individual cases within a time frame of 90 days or maximum 180 days with the approval of Core Group.The decision of CDR EG shall be final.
CDR Cell Comprising officials on deputation from Core Group
member Banks. To assist the Forum and the Group in all their functions.All references for restructuring are made to CDR Cell.Initial scrutiny of proposals received to decide whether the proposal is prima facie viable.Scrutiny of Final package to ensure adherence to RBI/CDR guidelines.
Issuance of LOA and any other directions given by CDR EG.Monitoring overall progress in respect of sanctioned cases.
Membership
Institution Banks
CategoryTotal
Member of CDR System
Non-member of
CDR System
All-India FIs 14 11 3Public Sector Banks
26 26 -
Private Sector Banks
20 14 6
Total 60 51 9
Key Concepts
Inter Creditor Agreement – signed by all members.Debtor Creditor Agreement – signed by borrower.Stand Still Period – no legal action to be taken.Super Majority – 75% by value & 60% by number.Holding on Operations – continue operations at existing level.TRA – all debits and credits from single account.Monitoring mechanism – check on the conduct/compliance.
CDR SYSTEMFinal Restructuring Proposal to be put up to CDR
EG within 90 days / maximum 180 days for approval. On approval by super majority CDR Cell to issue
the Letter of Approval (LOA) to MI / Lenders.Lenders to implement the package within 120 days
to avail regulatory concession in asset classification.Monitoring of approved account to be done through
Monitoring Committee.
CDR Statistics – From inception till September 2013
Proposals No.of cases
Total Debt (Rs. Crore)
Referred 580 362370
Rejected 96 45256
Under Process 53 44828
Approved 431 272285Exited Successfully 67 51105
Withdrawn on failure 103 24915
Live cases in CDR 261 196266
Year-wise CDR Statistics (Rs.crore)Particulars Upto
FY 2008-09FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14
(upto Sept.2013)
No Amt No Amt No Amt No Amt No Amt No Amt
Referred 225 95815 31 20175 49 22614 87 67889 129 91497 59 64380
Rejected 29 5018 3 2032 10 2617 17 11150 29 16228 8 8211
Approved 184 86536 31 17763 27 6615 50 39601 106 76615 33 45156
Exited Successfully 43 31572 2 1153 6 680 6 9672 6 7247 4 780
Withdrawn on Failure 47 7191 7 646 11 732 9 2767 12 4352 17 9227
Trends in restructuring
Increase in RSA (restructured standard advances) at CAGR of 42.54% vis-à-vis increase in gross advances at CAGR of 19.13% during period 2009-2012.
Ratio of RSA to Gross advances 5.73% in PSBs, 1.61% for private sector banks. The level is increasing in PSBs and reducing in private sector banks.
Medium & large industries and services sector are major contributors.
Some issuesViability issues
Additional finance
Restructuring of non-CDR lenders
Delay / Non-implementation of approved package
Right of Recompense
RBI GuidelinesAsset Classification - Downgrade asset classification for all cases
of restructuring. Effective from April 1, 2015.
Existing relaxations in asset classification for DCCO to continue.
Enhanced Provisioning requirement for standard restructured assets from 2.75% to 5% for fresh restructured assets.
Period for ascertaining viability of borrower.
Promoter’s contribution to be stipulated at higher of 20% of banks’sacrifice or 2% of restructured debt (as against existing contribution at 15% of bank’s sacrifice).
RBI Guidelines (Contd…)
Conversion of debt into equity/preference shares limited upto10% of restructured exposure (as against existing limit of 30% as per Sec 19 (2)) & conversion of equity only in case of listed companies (asagainst existing conversion to unlisted companies also available).
Mandatory personal guarantee in all restructuring (as against existing exemption from personal guarantee if the borrower is affected by external factors relating to the economy and industry).
Recompense (Mandatory in all cases)100% recompense amount if facility below base rate.Atleast 75% recompense amount for other cases.