Foreign banks may get exit option in CDR deals

The Reserve Bank of India (RBI) is considering revising the guidelines on corporate debt restructuring (CDR) to allow foreign banks an exit option from a sanctioned package.

Foreign banks are the minor lenders, mostly having working capital exposure due to which their voice seldom carries much weight when the debt restructuring of a company is considered.

They have been seeking an exit option in deals where their comfort level was low.

The revised guidelines are likely to be announced in two weeks.

The inter-creditor agreement under the CDR forum has a provision that says lenders with minimum 75 per cent debt exposure to a corporate can carry through a restructuring package. This often becomes a binding on the other minority lenders.

Foreign banks have been arguing against this clause in the agreement among the CDR members and have refused to formally join the forum. They, however, have been selectively restructuring their debt on the terms decided by the CDR group,wherever they viewed it to be justifiable.

Foreign banks are particularly averse to pumping in additional money as part of any restructuring package. They are rather keen on settling their dues directly with the borrower, even if it meant realising less amounts.

The fight by foreign banks for a non-binding clause in the inter-creditor agreement is likely to benefit Indian banks too.

Both private and public sector banks with minority exposures are likely to be allowed an exit option if they didn't agree with the restructuring terms decided by the majority lenders.

So far, the CDR group has restructured about Rs 80,000 crore debt. This includes Rs 27,000 crore debt to steel companies, Rs 8,000 crore to fertiliser companies, Rs 7,000 crore to chemical companies, Rs 3,000 crore to textile companies, Rs 2,700 crore to cement companies and Rs 2,000 crore to sugar companies.