1. As promoters fail to infuse capital, recast loans of Rs 50,000 cr fail at CDR cell in FY12

As promoters fail to infuse capital, recast loans of Rs 50,000 cr fail at CDR cell in FY12

Aggregate recast loans worth around Rs 50,000 crore (Rs 49,332 crore) failed at the corporate debt restructuring (CDR) cell in FY17, taking total failures since the inception of the cell in 2001 to Rs 1.37 lakh crore.

By: | Mumbai | Published: May 16, 2017 6:48 AM
Since inception, the cell has approved loans worth Rs 4 lakh crore. (PTI)

Aggregate recast loans worth around Rs 50,000 crore (Rs 49,332 crore) failed at the corporate debt restructuring (CDR) cell in FY17, taking total failures since the inception of the cell in 2001 to Rs 1.37 lakh crore. Since inception, the cell has approved loans worth Rs 4 lakh crore. In FY17, lenders referred just one loan, Gangakhed Sugar & Energy’s loan worth Rs 350 crore, to the CDR cell in January, taking the total referral since the inception to Rs 4.74 lakh crore.

Banks had last referred a loan in March 2015 following which restructuring rules changed and banks stayed away from the CDR cell. Large CDR failures in FY17 included Rs 10,000-crore loan recast of loss-making shipbuilder ABG Shipyard, PSL Ltd (Rs 3,300 crore), Visa Steel (Rs 2,400 crore), Moser Baer India (Rs 2,050 crore) and Shiv-Vani Oil & Gas Exploration Services (Rs 2,100 crore).

The primary reason for CDR failure is the inability of promoters to infuse the requisite equity capital in the defined period and non-compliance to the CDR agreement in pledging shares in favour of the consortium of lenders. Restructuring schemes often fail also because promoters are unable to sell non-core assets to mobilise resources as promised.

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While the moratorium is generally maintained at two years, lenders need to estimate when the company is able to start servicing its debt. If a company can’t generate sufficient cash flow even after five years of recast, then it is not considered viable to be recast. Once the asset is out of the CDR fold, banks have the option of either writing it off or keeping it on their books as an NPA.

They can also sell the loan to an asset reconstruction company as they did with Bharti Shipyard (Rs 5,800 crore) and Hotel Leelaventure (Rs 3,000 crore). The CDR cell did not receive any recast requests in FY16 and just one request in FY17. In FY15, the cell had approved 54 cases worth Rs 72,560 crore for recast. Lenders approach the CDR to provide some relief to companies under stress by means of reducing the rate of interest being paid.

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