CDR referrals hit Rs 26,386 cr in Sept quarter on rising stress

Written by Vishwanath Nair | Mumbai | Updated: Sep 27 2013, 09:16am hrs
Loans worth R6,492 crore were referred to the corporate debt restructuring (CDR) cell in September, taking the second quarters total to R26,386 crore, a senior banker said. This is much higher than the R18,907 crore worth of cases referred to the cell in the same quarter last year, showing that the pace of debt restructuring in the banking system is showing no signs of abating.

Of the 13 cases referred this month, the larger ones are Ideal Energy (R1,353 crore), Kiri Industries (R575 crore) and Vardhaman Chemtech (R216 crore). Nagpur-based Ideal Energy Projects is promoted by Dattatray Mhaiskar. The company has a 2X270 MW coal-based thermal power plant in Nagpur, which began generating electricity in March this year. Sources said the project was facing issues with its fuel supply agreements due to shortage of coal supplies. Low demand from distribution companies is also being cited as a reason for the company seeking debt restructuring.

The CDR cell also admitted AMR India's R1,323 crore debt for recast in September. The AMR Group has interests in infrastructure, mining and construction. AMR and Ideal are not listed entities and hence, their financials could not be ascertained.

The CDR cell has seen the entry of several large names including Lanco Infratech (R7,500 crore), Soma Group companies (R6,000 crore), Electrosteel Steels (R6,461 crore) and Abhijeet Group companies (R6,000 crore) during the July-September quarter.

However, the cell did not approve any case during September, the senior official said. In August, the cell had approved three loans worth Rs 3,752 crore, which included a recast package worth Rs 3,380 crore for PSL Industries.

In FY13 alone, the cell had approved restructuring for 106 accounts worth Rs 76,479 crore. The pace for restructuring does not seem to be slowing down this year either. During April-June, the cell had approved loans worth Rs 21,266 crore for restructuring.

Bankers meet every month to take stock of developments at each company admitted to the CDR cell and whether they should be approved or not. According to analysts, the banking system could take a collective hit of an estimated Rs 13,000-15,000 crore on bottomline in next two years due to the tough restructuring guidelines issued by the Reserve Bank of India.

In its final guidelines announced in May, the RBI raised provisioning requirements for all new restructured loans to 5% starting June. This was higher than the earlier requirement of 2.75%. For all standard restructured assets, the provisioning requirement will be raised to 5% by 31 March 2016, in a calibrated manner.

Moreover, the level of promoter sacrifice has also been raised to a minimum of 20% of bank sacrifice or 2% of the restructured loan amount, whichever is higher.

The government and the banking regulator have both come out heavily against promoters using the CDR window for companies ailing due to bad management. Banking secretary Rajiv Takru, on more than one occasion, has said that promoters who are willful defaulters and who use the opportunity to restructure loans excessively should be dealt with strictly. RBI governor Raghuram Rajan has stated that promoters do not have a divine right to stay in charge regardless of how badly they manage an enterprise, nor do they have the right to use the banking system to recapitalise their failed ventures.