The Telegraph
Since 1st March, 1999
Email This Page
Corporate debt recast on fast track

Mumbai, Aug. 27: The corporate debt restructuring (CDR) initiative has gathered pace with banks managing to bring down their non-performing assets (NPA). However, net NPAs of financial institutions have risen in 2002-03 on the back of slow economic recovery, sectoral bottlenecks and adverse domestic and international market conditions.

Group-wise, foreign banks had the lowest NPA ratios, followed by the State Bank group. The number of banks with net NPAs above 10 per cent fell from 23 in 2001-02 to 12 in 2002-03, the RBI annual report has said.

“During 2002-03, the CDR standing forum met two times, the core group five times and the empowered group 16 times,” the report said. However, the CDR cell was cautious while restructuring debt and of the 71 applications received, 41 cases amounting to Rs 38,638 crore were approved. Eighteen cases were rejected while the remaining 12 are being processed.

The CDR system in the country was inspired by systems in the UK, Thailand and Korea, the RBI said.

The scheme envisages a voluntary system based on debtor-creditor agreement (DCA). The system covers only multiple banking accounts or consortium accounts of Rs 20 crore and above.

The inter-creditor agreement signed on February 25, 2002, by 47 institutions comprises 12 Indian FIs, 27 public sector banks and 22 private sector banks. UTI (among FIs), seven private sector banks and 41 foreign banks are yet to sign, the RBI said.

While the lending institutions took up debt restructuring of companies on a war footing, two financial institutions needed help from the Union government. The government initiated restructuring of IDBI and IFCI. Public sector banks and financial institutions having exposures to IDBI were assured about the payment of contracted interest rates.

In turn, IDBI was given an assurance by the government that it will meet the difference between the original interest rate and the agreed interest rate of 8 per cent by the banks and FIs till maturity.

In the case of IFCI, the government decided to take over SLR bonds and retail borrowings below Rs 1 lakh. The government also decided to service the loans from Asian Development Bank and KfW. The package includes 20-year zero coupon bonds worth Rs 1811 crore into quasi equity instruments.

Email This Page