The corporate debt restructuring (CDR) cell has become more stringent on promoter contributions in loan recast packages. A senior bank official said off late, promoters have been asked to bring in over 15% of the diminution in the fair value of the restructured account.
The attempt to ensure that promoters have ?skin in the game? is in line with the recommendations of the working group on restructured advances headed by Reserve Bank of India (RBI) executive director B Mahapatra.The working group has recommended that RBI consider a higher amount of promoters? sacrifice in cases of restructuring of large exposures under CDR mechanism. It prescribed a minimum of 15% of the diminution in fair value or 2% of the restructured debt, whichever is higher, apart from calling for personal guarantees from promoters.
While no specific names were available, over the last 2-3 months the CDR cell has been insisting on 15-25% of the banks? sacrifice as contribution from promoters on new CDR proposals.
In July 17 cases were referred to the cell valued around R7,500 crore. Current RBI guidelines require the promoters? sacrifice and additional funds brought by them to be 15% of the diminution in the fair value. Bankers say that in most cases, in the past, promoters stuck to the minimum 15% contribution.
The diminution in the value of the loan or the ?sacrifice? arises because post-restructuring, the borrower is charged a lower rate of interest and the loan is repaid over a longer period. Bankers say that since not all promoters have the capacity to bring in a larger contribution, in such cases the CDR cell is sticking to the 15% minimum criterion.
It is at the initial or flash stage of receiving a CDR proposal that the promoter is being asked to bring in a greater amount of promoter contribution. ?This will ensure greater commitment from the promoters in the restructuring process. Promoters are also encouraged to offload non-core assets of their company to meet the promoter contribution,? the official added. After the flash stage the CDR proposal subsequently goes through an empowered committee and a core group of bankers before it is approved for restructuring.
