The corporate debt restructuring (CDR) system, originally envisaged as a platform for public sector banks and financial institutions for restructuring sticky debt, is being widened to cover private and foreign banks.
The CDR standing forum met on February 25 to extend the umbrella to foreign and private sector banks and sign the inter-creditor agreement (ICA).
Eight all-India financial institutions, 26 public sector banks and 15 private sector banks signed the ICA.
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The CDR plans to restructure those sticky loans which are outside the purview of the Board for Industrial & Financial Reconstruction (BIFR), debt recovery tribunals (DRTs) and the Reserve Bank of India's wilful defaulters' list.
The CDR is a non-statutory voluntary mechanism based on debtor-creditor agreement (DCA) and ICA. This will cover only multiple accounts/ syndication/ consortium of accounts with outstanding exposure of Rs 20 crore and above by banks/ institutions. The system will be applicable only to standard and sub-standard accounts. However, potentially viable cases of NPAs will get priority.
The CDR also will not consider the request of any corporate indulging in wilful default or misfeasance.
The legal basis for the mechanism will be provided by ICA. All participants in the CDR mechanism will have to enter into a legally binding ICA with necessary enforcement and penal clauses.
The CDR system was envisaged to have a three-tier structure comprising the CDR standing forum, CDR empowered group and the CDR cell. The Industrial Development Bank of India's chairman and managing director P P Vora is the chairman of the core group. The other members of the group include ICICI managing director and CEO K V Kamath, SBI chairman Janaki Ballabh, Bank of India CMD K V Krishnamoorthy, Punjab National Bank CMD SS Kohli and RBI's chief general manager MR Srinivasan.
The core group met twice on December 6, 2001 and on January 31, 2002. The CDR empowered group has also met twice so far. While the first meeting mainly discussed the procedural matters / formats for obtaining information, the second meeting considered the flash reports from four companies.
The CDR empowered group consists of executive director- level representatives of IDBI, ICICI and SBI as standing members, in addition to ED level representatives of financial institutions and banks, who have an exposure to the concerned company. The group is mandated to approve restructuring within a specified time-frame of 90 days.
The financial system was facing a problem of lack of consensus among themselves on restructuring of loans. "Projects require funding at the right time. If there is a delay in this then the whole project gets wasted. There are also instances where consensus among the different institutions could not be build up thus affecting the infusion of funds," said senior institutional sources.
"The major lenders can now force others to take a decision. The smaller lenders were not very keen on putting in additional money or go in for restructuring as they did not have much to lose," said a senior public sector banker.