The fate of the once-crucial corporate debt restructuring (CDR) cell hangs in the balance. The cell has sought clarity from the Reserve Bank of India (RBI) regarding its role after the central bank dissolved all restructuring schemes of the past through its February 12 notification, two senior bankers told FE.
According a senior IDBI Bank official, the cell has written to RBI seeking clarity on its new areas of work after the circular, but the central bank has not yet responded. One of the primary concerns raised by the cell in its conversations with the regulator is around the status of the companies which have undergone successful CDR restructuring but have not yet exited the cell. “The regulator is discussing this internally and is yet to clarify to us,” the banker said.
The CDR cell’s website is also not available and sources said that services for the website will resume depending on the regulator’s response.
Since inception in 2001, the cell has approved loans worth Rs 4 lakh crore. In FY17, lenders had referred just one loan, Gangakhed Sugar & Energy worth Rs 350 crore, to the cell in January, taking the total referral since inception to Rs 4.74 lakh crore. Prior to that, banks had last referred a loan in March 2015 following which restructuring rules changed and banks have since stayed away from the CDR cell.
Latest available data showed that the cell had Rs 1.48 lakh crore of live cases —companies whose debt have been recast but are yet to exit the cell — as on August 30, 2017. In the same period, loans worth `1.69 lakh crore have failed at the cell.
The primary reason for CDR failure is the inability of promoters to infuse the requisite equity capital in the defined period and non-compliance to CDR agreement in pledging shares in favour of the consortium of lenders. The restructuring schemes also often fail because promoters are unable to sell non-core assets to mobilise resources as promised.
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 cashflow even after five years of recast, then it is not considered viable to be recast.
The CDR cell works on the principle of approvals by super-majority of 75% of creditors (by value) which makes it binding on the remaining 25% to agree to the majority decision and covers only multiple banking accounts and consortium accounts with exposure of Rs 10 crore and above.