The Telegraph
Since 1st March, 1999
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Whiff of hope for debt-laden firms

Mumbai, Oct. 7: The Reserve Bank of India plans to rejig the corporate debt restructuring (CDR) mechanism to make it easier for debt-laden companies to shed the burden they have been carrying for years.

“The CDR mechanism was reviewed recently by a special group and we expect to bring out, in a couple of weeks, the revised operational guidelines to make the restructuring smoother for genuine cases,” Reserve Bank governor Y.V. Reddy said today in his valedictory address at a global banking summit organised by the Federation of Indian Chambers of Commerce and Industry (Ficci) and the Indian Banks’ Association (IBA).

The CDR scheme came into effect in March 2002 and is designed to help revive companies which have neither defaulted on their repayment to creditors or turned sick and been referred to the Board for Industrial and Financial Reconstruction (BIFR).

The scheme has helped large steel companies and Haldia Petrochemicals Ltd to jettison the load of high-cost debt that has trammelled their performance for quite a few years.

The scheme lays down a timely and transparent mechanism to restructure corporate debts of viable entities, which have a minimum aggregate debt of Rs 20 crore.

Reddy said the scheme had been very effective, which was evident from the fact that over 100 cases had been approved for restructuring.

Recent figures suggest that the CDR cell has so far restructured 124 cases having an aggregate debt of more than Rs 72,721 crore. Of these, close to 97 cases have been fully implemented with nearly 75 per cent cases performing well and meeting their debt service obligations in time.

The cell is currently working on proposals from companies with debts amounting to almost Rs 2,000 crore.

The data shows that the iron and steel industry accounts for almost 40 per cent of the approved packages. The other sectors include fertiliser, textiles, sugar and telecom. Bankers believe that the scheme could be now made more corporate friendly with the minimum aggregate debt level likely to be brought down.

Reddy said recent developments that warrant a careful redesign of bank-corporate relationship include financing by multiple banks through several instruments and access to a wider choice of sources of finance to companies such as capital markets and external financing.

Flexible on Basel II

Reddy said the central bank is willing to be somewhat flexible on the timings for the implementation of the Basel-II guidelines in the Indian banking sector.

“We are willing to be somewhat flexible on the timings of the Basel II,” he said in response to a query.

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