Aggregate loans recast loans worth Rs 1,00,542 crore have failed since the corporate debt restructuring cell (CDR) was set up in 2001. This follows the failure of eight recasts in July for an exposure of approximately Rs 3,000 crore.
Among the companies whose restructuring failed in July are Deepak Cables (Rs 1,100 crore), Jyoti Ltd (Rs 790 crore) and Raj Rayon Industries (Rs 540 crore).
Mythili Balasubramanian, chairman of the CDR cell, said most packages fail because of promoters’ inability to comply with the CDR provisions. “Among the main reasons for restructuring not working out are the inability of promoters to infuse the requisite equity capital within the defined period and non-compliance to CDR agreement in pledging shares in favour of the consortium of lenders,” she said.
Restructuring schemes also often turn futile because promoters are unable to sell non-core assets to mobilise resources as promised.
Balasubramanian said 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 viable to be recast,” she said, adding that the moratorium is provided because stressed companies need a breather to ramp up production.
If the company’s performance exceeds projections by 25% or more, the company is identified for a successful exit. But, if it fails to meet projections, it is declared a failure. While the recast of Jyoti was approved in September 2013, bankers had cleared Raj Rayon’s CDR in March 2014.
In 2014, four other companies, with total debt obligation of Rs 14,000 crore that had been restructured to make it easier for them to repay loans, failed at the CDR cell. 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 NPAs. 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 Reserve Bank of India (RBI) had allowed lenders to classify restructured accounts under the restructured-standard category till March 2015. However, from April, banks have been instructed to classify restructured accounts as NPAs, and given the continued financial strain across corporate India, chances are that NPA portfolios of some lenders could grow bigger.
The CDR cell did not receive any recast request in FY16. In FY15, the cell 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 and also offering a two-year moratorium on interest payments.