With more loan recasts under the corporate debt restructuring (CDR) cell failing, the total amount of money at risk is now R1.15 lakh crore. In October alone, banks found five firms for which loans worth nearly R5,000 crore were recast had been unable to turn around their operations. Lenders had recast loans worth nearly R5,000 crore for these firms which included Visa Steel and Base Corporation.
The CDR cell has, since it was set up, approved loans worth R4 lakh crore. While there have been numerous failures, close to 100 firms with loans of R70,000 crore have successfully exited the cell.
Among the five companies whose restructuring failed in October were Visa Steel (R2,400 crore), Base Corporation (R1,030 crore), Moser Baer Solar (R700 crore) and Tara Health Foods (R300 crore).
Visa Steel is by promoted by Visa Infrastructure and Visa International, which hold 40.35% and 21.63% of the company, respectively. Vishal Agarwal is the vice-chairman and managing director of the company. In September 2015, lenders had decided to convert a large portion of their loans into equity via the strategic debt restructuring scheme. Among the lenders to the company are Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank a few banks from the SBI Group and Syndicate Bank.
Mythili Balasubramanian, executive director, IDBI Bank, 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.
The Reserve Bank of India (RBI) had allowed lenders to classify restructured accounts under the restructured-standard category till March 2015. However, since then banks have been classifying restructured accounts as non-performing assets, 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 requests in FY16 and neither has it received requests so far this year. In FY15, the cell approved 54 cases worth R72,560 crore for recast. Lenders approach the CDR with a view to providing some relief to companies that are stressed usually by reducing the rate of interest and also offering a two-year moratorium on interest payments.