The corporate debt restructuring (CDR) process followed by banks, especially State-run lenders, is “biased towards more privileged customers”, Reserve Bank Deputy Governor K. C. Chakrabarty said today.

“Lack of ethics has given rise to an unprecedented rise in CDR cases,” Chakrabarty told an event on CDR organised by brokerage firm Centrum here.

“The CDR process is biased towards better privileged customers...those who have access...can come through consultants,” he said.

Chakrabarty, who looks after banking services at the central bank, also said due diligence and project appraisal are not done properly by the banks, which has resulted in a rise in CDR cases.

He said loan restructuring is more in the case of public sector banks. “Why do only public sector banks come before the CDR cell?” he asked, and said this is because the process is not followed in an objective manner.

While any stress in the economy should put stress on small customers, it is seen that CDR cases are more from large corporates, he said.

Following the general weakness in the economy, there has been a massive spurt in restructured assets since the middle of the past fiscal, which has resulted in the total quantum of CDR assets touching nearly Rs 2 trillion.

The first quarter alone saw nearly Rs 35,000 crore being added to CDR book, mainly led by State-run lenders.

“Project appraisal has not been proper...when the commercial operations will start or what will be the cost-flow analysis,” Chakrabarty said, adding stress on the economy is not the only factor.

CDR should be justified and provided to promoters who are ready to tighten their belt, he said. “Issues of CDR should be dealt with purely on commercial considerations.”

The promoters should bring equity into the company rather than financing it out of total debt, Chakrabarty added.

He also pointed out that the CDR process should not take long. “The whole process should be completed in 90 days. It should not linger for a longer period.”

Related Topics
comment COMMENT NOW