Cos approach banks for recast of over Rs 28,000-cr debt

The economic slowdown has started taking a toll on the banking sector, with a large number of companies approaching banks for restructuring of debt totalling about Rs 28,890 crore (Rs 288.9 billion) in July-September, 2011.

Leading the pack, Punjab National Bank has received requests for corporate debt restructuring of loans worth an estimated Rs 1,490 crore (Rs 14.9 billion).

PNB was followed by IDBI Bank, with estimated CDR referrals of Rs 1,390 crore (Rs 13.9 billion), and Union Bank of India with requests for restructuring of debt worth Rs 1,280 crore (Rs 12.8 billion) during the second quarter of the current fiscal.

During the same period, the estimated CDR referrals to Canara Bank amounted to Rs 1,230 crore (Rs 12.3 billion), while Central Bank of India received debt restructuring proposals worth Rs 1,210 crore (Rs 12.1 billion) and ICICI Bank referrals worth Rs 1,170 crore (Rs 11.7 billion), according to data compiled by IDBI Capital.

It is to be noted that the total cases referred under CDR increased to 19 in the second quarter from 16 in the first quarter of the current fiscal.

However, in terms of the amount, there was nearly a five-fold rise in the value of CDR referrals to Rs 28,890 crore (Rs 288.9 billion) in July-September from Rs 5,670 crore (Rs 56.7 billion) in the April-June period of 2011.

In the first six months of the current fiscal, the total value of CDR referrals has soared to an eight-year high of Rs 34,500 crore (Rs 345 billion).

The number of CDR referrals increased to 35 during the April-September period from 22

in the same period last fiscal.

The corresponding amount of loans referred for restructuring has also increased to Rs 34,560 crore (Rs 345.6 billion) in the first half of the current fiscal from Rs 5,180 crore (Rs 51.8 billion) in the same period of 2010-11, it said.

The CDR framework provides a timely and transparent mechanism for restructuring the debt of viable corporate entities facing problems outside the purview of the BIFR, DRT and courts for the benefit of all concerned.

The scheme covers only multiple banking accounts, syndication and consortium accounts, where all banks and institutions together have an outstanding aggregate exposure of Rs 10 crore (Rs 100 million) and above.

CDR requires approval by a super-majority of 75 per cent of creditors (by value), which makes it binding for the remaining 25 per cent to fall in line with the majority decision.

Once a case is referred for CDR, a standstill period of 90/180 days is invoked.

Within the standstill period, both the borrower and lender agree to keep things as they are (standstill) and commit themselves not to take recourse to any legal action during the period.

A standstill is necessary for enabling the CDR system to undertake the necessary debt restructuring exercise without any outside intervention, judicial or otherwise.