The corporate debt restructuring (CDR) cell in May received four new cases for recasting loans amounting to a little over R2,000 crore, according to a senior banker. This takes the overall number of cases referred to the CDR cell in the first two months of this fiscal to 22. These loans are valued at around R9,000 crore.
Among the four cases that were referred to the CDR cell in May, Varun Industries with R1,755 crore worth of loans accounted for a major bulk of the loans sought to be recast. Varun Industries, which has a major presence in the stainless steel business, is also diversified into other businesses like mining, wind energy, gems and jewellery. Indian Bank is said to be the lead banker in the consortium of 10 other banks including Central Bank of India and United Bank of India. Varun Industries made a loss of R158 crore in financial year 2011-12 on revenues of R3,177 crore.
Other cases that were referred to CDR cell in May include steel company Bhuwalka Steel (R132 crore), Zuberi Fibres (R78 crore) and Hyderabad Education (R60 crore). The value of loans restructured could increase as the year goes by. Analysts believe the number of large corporate cases that are likely to be referred to CDR cell could go up with the economy slowing down. Banks referred 84 cases to the tune of R64,500 crore in 2011-12.
According to sources, companies including Mudra Lifestlye, Dighi Port, Karnal Agricultural Industries, Steelco Gujarat and Rama Steel are awaiting the majority approval of its bankers to be referred to the CDR cell. A loan account can be eligible for CDR provided the initiative to resolve the case under the CDR system is taken by at least 75% of the creditors (by value) and 60% of creditors (by number).
Bankers say that the CDR process imposes a sacrifice for banks in terms of the diminishing of the net present value (NPV) of their loan exposure with a typical slippage ratio of around 10-15%. This is aside from the bilateral restructuring (of state electricity boards, aviation companies and the recent textile mills) that is likely to further stretch banks’ balance sheets over the next 12 months.
