The Hindu Business Line : Foreign banks still shy of joining CDR mechanism

DOMESTIC lenders are still finding it difficult to rope in foreign banks to participate in the corporate debt restructuring (CDR) mechanism, aimed at helping corporates to overcome their temporary financial problems.

The CDR mechanism, which was launched in February 2002, is a voluntary and non-statutory arrangement between lenders and borrowers, targeted at ailing corporates with loan exposures of over Rs 20 crore to the banking sector.

The responsibility of coordinating the mechanism lies with Industrial Development Bank of India (IDBI).

Of the 105 All India Financial Institutions and Banks, 60 have signed the CDR agreement and 45 are yet to sign. However, sources said, that 10 more players have relented to sign the agreement, while 35 others, all foreign banks, continue to remain in the fray.

The Indian Banks' Association has been in active dialogue with foreign banks urging them to come on board to join the banking system in aiding the restructuring of the debt of beleaguered companies, which are still potentially viable.

According to sources, among the various reasons due to which foreign banks have been shy of participating in the mechanism, is that they don't want to pump in additional funds to rehabilitate sick units.

Top bankers of public sector, private sector and foreign banks, including the chiefs of All India Financial Institutions met here on Friday, to review the latest developments and discuss issues related to CDR.

Some Indian bankers are of the view, that foreign banks will soon shed their inhibitions and join the CDR mechanism, going by the progress made in recent negotiations.

As on date, the total number of cases approved under the CDR mechanism is 106 involving and amount of Rs 65,412 crore. Total proposals received were 152 cases amounting to Rs 75,235 crore.

Thirty-two proposals were rejected amounting to Rs 5,568 crore.

There are 14 applications under process amounting to Rs 255 crore.

Of the various sectors under CDR, iron and steel constitute 4 per cent, fertilisers - 11 per cent, chemicals - 10 per cent, refineries - 7 per cent, telecom - 6 per cent, power - 4 per cent, cement - 4 per cent, textiles and sugar -3 per cent each.