State Bank of India (SBI) is appointing nominee directors on the boards of stressed companies to help it deal with cases of debt recasts. A senior SBI official told FE the bank is looking at taking board positions in companies that are undergoing large and complex debt recasts. In many of these cases SBI is also the lead banker in the consortium.
"In SBI, we appoint existing senior officials or retired senior officials to act as directors on the board of companies, especially those seeking recast or restructuring. These cases involve complex restructuring, require constant monitoring and follow up as well as time bound programmes," the official said.
The official added those representatives that the bank nominates as directors understand credit and the industry. “It helps us because the representative is present at the board meetings and so we know the progress the company is making. Also they have the expertise to contribute usefully to the company,” the official added.
The official did not name the companies where SBI has already taken up board positions. However, SBI currently has nominee directors in companies like Suzlon and Bharti Shipyard, which are implementing debt-recast packages under the auspices of the corporate debt restructuring (CDR) cell. The move is in line with the call made by the core group of CDR cell which recently authorised the cell to permit the lead banker to appoint new directors to the boards of stressed companies.
A CDR cell official said that in recent times, the need for having a nominee director has become greater because of a huge surge in recast cases and since the restructuring package has certain expectations from the company. Bankers are giving more time and sometimes more funding towards the recast package and they expect certain quid-pro-quo from the company and management, he added.
The CDR cell in the first nine months of the financial year restructured accounts to the tune of R63,000 crore. This is about 31% higher than the R48,000 crore worth of accounts recast in the same period of the previous financial year.
SBI official added that promoters of stressed companies have no problem with having bank representations on the board. “Bankers are stakeholders and it is only fair they have a board position. As to how long they will continue will depend on the company’s performance and need,” the official added.
At the end of the September quarter, the restructured loan book for SBI as a percentage of the overall loan book stood at 4.4% (R40,454 crore). According to the management, the restructured pipeline stands at R5,000 crore for the coming two quarters.