Big-ticket debt recasts to be evaluated independently

Written by fe Bureau | Mumbai | Updated: Dec 12 2013, 09:14am hrs
RBI will independently evaluate large cases of debt restructuring, Raghuram Rajan said on Wednesday. We will mandate an independent evaluation of large-value restructuring with the focus on whether the plan is viable and there is a fair sharing of losses, Rajan said. The mandate is likely to be part of a discussion paper that the RBI will float next week on quick recognition and resolution of stressed assets.

The RBI has taken a tough stand on the high level of restructuring done by banks through the corporate debt restructuring (CDR) mechanism, which is expected to hit R1 lakh crore in the current fiscal year.

Last week, Rajan had said that while accounts considered reasonably viable should be restructured, loans to unviable projects should be written off. In case of willful defaulters, promoter assets should be taken over by financial institutions, he had said. Last month, RBI deputy governor KC Chakrabarty stressed on the need for independent oversight of the CDR cell for more transparency in the debt recast process. He had said that while forbearance was a necessity for viable accounts facing temporary difficulties, there was increasing evidence of misuse of the facility for evergreening troubled accounts.

The CDR cell is a forum of bankers that meets every month to discuss debt recast packages of various companies referred to it. As on September 30, the total value of loans approved by the CDR cell had crossed R2.72 lakh crore. Banking secretary Rajiv Takru had first floated the idea for independent oversight of the CDR cell in June this year.