In “The curious case of debt restructuring” (Alam Srinivas, February 23), the author says it is for banks to figure out the genuineness of promoters. Is it then logical for him to expect the Reserve Bank of India (RBI) to have intervened in Ispat and Kingfisher cases? The regulator is right not to interfere in the working of the corporate debt restructuring (CDR) mechanism. Also, the article does not mention that there is a regulatory disincentive in asset classification for cases of second or subsequent restructuring. The RBI is aware of the problem.
The real flaw is the permanence of the CDR structure. This creates a disincentive for the borrower to negotiate with his principal lenders in the early stages of sickness. He might as well wait for a reference to the CDR forum in which the dynamics of negotiation are different. The RBI should, at irregular intervals, declare a holiday, stopping referral of fresh cases for an indefinite period. This will compel borrowers and lenders to engage with each other at all times, CDR or no CDR.
Debt restructuring can still take place outside the CDR forum and in Company Law proceedings. The availability of a predictable debt restructuring mechanism creates an avoidable moral hazard.
K R Vaikuntam, Thrissur
Readers should write to:
The Editor, Business Standard,
Nehru House,
4, Bahadur Shah Zafar Marg,
New Delhi 110 002,
Fax: (011) 23720201;
letters@bsmail.in
