Corporate Debt Restructuring in India
Despite of best intentions and efforts, corporate find themselves in financial difficulty because of factors beyond their control or due to internal reasons. The trigger for difficulty might be an unstable macro-economic environment or changes in government policy or regulation or due to an incorrect strategic decision or problems within the company. If a company goes down, it takes an entire ecosystem of creditors, distributors, employees, customers, etc down with it. So at times, for the revival of corporate and for the safety of the money lent by banks and FIs, timely support through restructuring in genuine cases is called for. However, delay in ...view middle of the document...
10 crore and above. It covers all categories of assets in the books of member-creditors classified in terms of RBI's prudential asset classification standards. Even cases filed in Debt Recovery Tribunals/Bureau of Industrial and Financial Reconstruction/and other suit-filed cases are eligible for restructuring under CDR.
Corporates indulging in frauds and malfeasance even in a single bank will continue to remain ineligible for restructuring under CDR mechanism. However, Core Group, after reviewing the reasons for classification of the borrower as wilful defaulter, may consider admission of exceptional cases for restructuring after satisfying itself that the borrower would be in a position to rectify the wilful default provided he is granted an opportunity under CDR mechanism. BIFR cases are not eligible for restructuring under the CDR system. However the CDR Core Group can recommend exceptional BIFR cases on a case-to-case basis for consideration under the CDR system.
Reference to CDR Mechanism may be triggered by:
I. Any or more of the creditors having minimum 20% share in either working capital or term finance, or
II. By the concerned corporate, if supported by a bank/FI having minimum 20% share as above.
Categories of borrowers
Borrowers are classified into four categories for the purpose of stipulation of conditions.
1. Class A - comprises companies affected by external factors pertaining to economy and industry.
2. Class B - borrowers are such corporates/promoters who, besides being affected by the external factors, also have weak resources, inadequate vision and do not have support of professional management
3. Class C - borrowers are overambitious who have diversified into related/unrelated fields with/without lenders’ permission
4. Class D - financially undisciplined borrowers
The categorization of borrowers is decided by the EG after ensuring that all conditions being stipulated have been discussed with the borrower concerned by the referring institution.
Restructuring of corporate debts under CDR system could take place in the following stages:
a. before commencement of commercial production;
b. after commencement of commercial production but before the asset has been classified as ‘sub-standard’;
c. after commencement of commercial production and the asset has been classified as ‘sub-standard’ or ‘doubtful’.
Accounts restructured under CDR system, including accounts classified as 'doubtful' under Category 2 CDR, would be eligible for regulatory concession in asset classification and provisioning on writing off/providing for economic sacrifice only if
i. Restructuring under CDR mechanism is done for the first time,
ii. The unit becomes viable in 7 years and the repayment period for the restructured debts does not exceed 10 years,
iii. Promoters’ sacrifice and additional funds brought by them should be a minimum of 15% of creditors’ sacrifice, and