The Hindu Business Line : Corporate debt rejig deals unfair to small lenders?

CONTRARY to expectations, not all lenders are happy with the conduct of the corporate debt-restructuring cell created to restructure and rehabilitate large ailing borrower accounts.

The smaller banks are the particularly unhappy lot and they have made representations to the Reserve Bank of India.

Said the head of a private sector bank, "Very often the smaller lenders are bullied by the four big brothers of the group who typically constitute 75 per cent of the lenders. We have made a representation to the RBI on the issue."

It is uncertain whether RBI will act upon the complaint. The central bank executive director does sit through the high-level steering committee meetings of the group.

As per the ground rules of the CDR group, the decision on whether a case should go into CDR or not for resolution and the structure of the package itself is decided by 75 per cent of the lenders (in value), all of which are binding on the rest of the lenders. The large lenders, State Bank of India, Industrial Development Bank of India, ICICI Bank and one of the large PSU banks — Bank of Baroda, Bank of India or Canara Bank — are typically the big fish in almost every case.

The head of a private sector bank said, "There are instances where when one of the smaller banks has managed to make part recoveries from a borrower account, the bank is made to lend it back or pool it with the entire consortium of lenders."

But Chief General Manager at IDBI in charge of CDR, Mr Siby Antony, feels otherwise. He says, "In CDR we always go by super-majority of 75 per cent of lenders. There is no question of arm-twisting in CDR. Recoveries made by one bank are at times told to be lent back to the borrower if the restructuring package involves further funding so that it is equitable amongst all lenders."

Another private bank official said, "It is certainly not fair to make a small bank return the monies it has been able to recover through its proactive efforts and higher market intelligence." This, according to him, is what happens in CDR — Suppose bank X with an exposure limit of Rs 10 crore for a borrower recovers as much as Rs 7 crore from him over a few months after which the case goes in for CDR. If CDR envisages further funding, bank X is made to lend up to Rs 10 crore all over again as part of the restructuring package approved by 75 per cent of the lenders.

All may not be well with the scheme as a whole either, say some bankers. "While in the short term everything looks fine, how can one be sure of restructuring packages that run into 10-13 years," said a banker. As of now, restructuring packages of 42 cases aggregating Rs 36,600 crore have been fully implemented by CDR.