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  1. More companies may exit CDR for failing to meet loan recast norms

More companies may exit CDR for failing to meet loan recast norms

Jaybharat Textiles & Real Estate and steel producer Maithan Ispat are believed to have failed with the Corporate Debt Restructuring (CDR) cell.

By: | Published: November 3, 2014 6:09 AM
Jaybharat Textiles & Real Estate and steel producer Maithan Ispat are believed to have failed with the Corporate Debt Restructuring (CDR) cell. (Thinkstock)

Jaybharat Textiles & Real Estate and steel producer Maithan Ispat are believed to have failed with the Corporate Debt Restructuring (CDR) cell. (Thinkstock)

The loan recasts of the Tayal-group promoted Jaybharat Textiles & Real Estate and steel producer Maithan Ispat are believed to have failed with the Corporate Debt Restructuring (CDR) cell expected to take a final call on their accounts later this month. Confirming the development, a senior CDR official said the firms were likely to exit this month as they had failed to comply with the terms of the recast.

While the details for Jayabharat Textiles and Maithan Ispat were not immediately accessible, bankers say one of the main reasons for loan restructurings not working out is the inability of the promoters to infuse the requisite equity capital into the company in the defined period.

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Earlier this year, four other companies, whose total debt obligations of R14,000 crore, had been restructured to make it easier for them to repay their loans, exited the CDR. Once the asset is out of the fold of the CDR, banks have the option of leaving either writing it off or keeping it on their books as a non-performing asset (NPA). They can also sell the loan to an asset reconstruction company (ARC) as they did with Bharati Shipyard (R5,800 crore) and Hotel Leelaventure (R 3,000 crore).

According to K Subrahmanyam, ED, Union Bank of India, banks do make an attempt to recover their loans, once the account slips into an NPA. “We do not necessarily write off the account immediately,” the Union Bank executive direcrtor told FE.

PK Malhotra, deputy managing director, State Bank of India (SBI), who oversees the stressed asset portfolio at the bank, pointed out those provisioning requirements for accounts that exited the CDR cell would go up since these would no longer be standard assets.

At the end of March 2014, Jaybharat’s net debt, according to Bloomberg data, stood at R541 crore; the company had reported a net loss of R1.2 crore in the quarter to June 2014 on revenues of R137.8 crore. The two largest shareholders in the company include Saurabh Kumar Tayal (22.17%) and Nina Tayal (12.33%).

Emails sent to Jaybharat Textiles and Real Estate and Maithan Ispat remained unanswered.

The Reserve Bank of India (RBI) allows lenders to classify restructured accounts under the restructured-standard category.

However, from FY16 onwards, banks will have to classify restructured accounts as NPAs and, given the continued financial strain across corporate India, chances are the NPA portfolios of some lenders could grow bigger.

With the economy slowing down in the past couple of years, the CDR cell has been inundated with requests for loan recasts as companies saw their revenue growth falling and their cash flows crimped.

FE had earlier reported that loans of close to R37,050 crore, have been approved for a debt recast by the CDR cell, in the six months to September 2014, indicating that the stress in corporate India continues unabated.

While the quantum of assets restructured, in the first half of FY15, is smaller than that recast between October and March 2014, when it was R58,158 crore, it is nevertheless not an insignificant sum.

What’s worrying bankers is that most of the requests for loan recasts now are coming in from smaller companies. According to data compiled by the CDR cell, 16 accounts were referred to it in the six months to September, amounting to R16,020 crore.

Lenders approach the CDR to provide relief to companies under stress by means of reducing the rate of interest being paid and also offering a 2-3 year moratorium on interest payments.

 

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