For India Inc, loan recast by banks is set to become tougher. The corporate debt restructuring (CDR) cell has mandated that the lead bank in a consortium of lenders conduct an audit of how a company has utilised the loan before processing its request for debt recast.
According to Raj Kumar Bansal, Chairman, CDR Cell, the lead bank could also press for special audit where diversion of funds and fraud are suspected. All references for corporate debt restructuring by lenders / borrowers are made to the CDR Cell. The CDR mechanism covers only multiple banking accounts, syndication/consortium accounts, where all banks and institutions together have an outstanding aggregate exposure of ₹10 crore and above.
A senior public sector bank official said while the move to conduct audit of a corporate before processing its debt recast proposal is welcome, the moot point is whether the corporate will co-operate with the auditors appointed to undertake the task.
The move to conduct audit could prove a dampener for corporates, especially those that have indulged in fraud and malfeasance. In the first nine months of the current financial year, 84 CDR cases aggregating to a whopping ₹1,09,666 crore have been referred to the Cell.
For debt restructuring to be approved by lenders, the Cell requires minimum promoter’s equity contribution in all cases to be either 25 per cent (15 per cent earlier) of lenders’ sacrifice or 2 per cent of the restructured debt.
The sacrifice is the difference between the interest that a bank would earn according to the original loan agreement and the revised interest it would earn over an extended tenor post-debt recast, whichever is higher.
The time period for a company, whose debt restructuring has been approved by the Cell, to turn around has been cut to eight years (10 years earlier) in the case of infrastructure companies and five years (seven years) in the case of non-infrastructure companies.