The Hindu Business Line : CDR: All bark and no bite

CORPORATE debt restructuring (CDR), prompted by the RBI in 2001, never passed the stage of official circulars. Now the central bank has set up a high-level group under Mr. Vepa Kamesam, Deputy Governor, RBI, "to review the operations of the CDR scheme, to identify the operational difficulties, if any, in smooth implementation of the scheme and to suggest measures to make the scheme even more effective.'' Yet, the CDR will continue if a minimum of 75 per cent (by value) of the lenders (banks and FIs) consent for CDR, "irrespective of differences in asset classification status in banks and FIs.'' Going by the RBI circular dated August 23, 2001, CDR is kept outside BIFR, DRT and other legal proceedings. It is applicable to multiple banking accounts with outstanding exposures of Rs 20 crore and above. An important rule laid down by RBI was, "all standard and sub standard accounts subjected to CDR process, would continue to be eligible for fresh financing of funding requirements, by the lenders as per their normal policy parameters and eligibility criteria.''

There is a general impression, however mistaken, that CDR has been tailor-made for FIs including ICICI Ltd. (now dumped on ICICI Bank). No case till date has gone beyond a proposal as bankers and FIs disagree on rating clients with banks top-notching a lender downgraded by an FI and vice versa. Banks want the financial settlement to be split with working capital dues kept apart from unpaid long-term loans. Like most banking ideas, the one to set up a CDR has been picked up from the UK, Thailand, Korea and Malaysia, if not others. The RBI circular also laid down provisioning norms for restructured standard and non-standard assets. In USA Chapter 11 proceedings provide the statutory muscle to sort out financial turmoil. As India still does not have similar legislation, CDR came into being as a "voluntary workout procedure to rescue a company which takes place outside the confines of insolvency law.''

With a new ordinance in place allowing banks and FIs to forfeit assets of borrowers, the CDR may need to have a relook. Forfeiture laws are generally applicable to companies having no chance of revival and where the promoters are reluctant to pay up while CDR could be reworked to remove extant aberrations to get companies back into working order.

Bankers have (rightly) little regard for Indian managements and chuckle privately at the recent RBI distinction between a wilful and ordinary defaulter.

There is no ordinary defaulter and every default is wilful, they contend.

Yet, the same bankers have allowed a rise in incremental NPAs over the last two to three years despite tougher provisioning norms.

Acquiring dead assets for final sale is going to be a tough job as there may not be any takers. Will the threat of forfeiture laws get CDR to work? With the ordinance on forfeiture and securitisation, bankers have been provided with a menu of options to battle NPAs. In this context one would like to get some details like the cost to banks of restructuring a record number of accounts, as claimed.

Most banks seem to have also brought down NPAs. Can't bank chairmen be more specific to back their boasts?

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