The aggregate value of recast loans that have failed since the corporate debt restructuring cell (CDR) was set up in 2001 has hit Rs 1.2 lakh crore following the failure of three loan restructurings worth Rs 4,100 crore in November. This is more than a fourth of the value of loans that have been recast by the cell.

Over the past year alone, approximately Rs 32,000 crore worth of debt recast via the cell has turned into non-performing assets (NPAs).

The value of NPAs in the banking system rose to Rs 6.7 lakh crore at the end of September 2016, which was 9.1% of total assets. The stressed advances ratio (restructured plus NPAs) was 12.3%. The value of loans restructured via the cell at the September was Rs 2.2 lakh crore.

Among the three companies whose loan recasts failed in November are PSL (Rs 3,300 crore), Innoventive Industries (Rs 690 crore) and Cheema Industries (Rs 50 crore).

Lenders to PSL include ICICI Bank, State Bank of India (SBI), Union Bank of India, Bank of Baroda, Punjab National Bank, Bank of India (BoI) and IDBI Bank. The company’s debt recast was approved by the CDR cell in September 2013.

In its FY16 annual report, PSL said that while the company was required to begin repayments from the fourth quarter of FY15, because of an acute financial crunch it could not adhere to the restructured repayment time schedule. The company is promoted by the Punj family who collectively hold 17.55% and is headed by Ashok Punj, who is the firm’s managing director.

Meanwhile, according to media reports, private sector lender ICICI Bank filed an application against Innoventive Industries with the National Company Law Tribunal under the bankruptcy law. The firm’s debt recast was approved by the CDR cell in September 2014. Lenders to the company include Central Bank of India, Axis Bank, Bank of Baroda, BoI, SBI and IDBI Bank.

Mythili Balasubramanian, executive director, IDBI Bank, recently said that 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.

In 2014, four other companies with a 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.

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The CDR cell did not receive any recast request in FY16 and in FY17 till date. 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.