Pool more for CDR, promoters told

Even before the Reserve Bank of India (RBI) tightens norms for restructuring, bankers will insist on a higher promoter contribution for loan recasts of at least 25% of the diminution in the fair value of any loan that is recast.

A meeting of the core group of the corporate debt restructuring cell (CDR) cell that meets on December 5 will ratify the decision. The limit is is being raised from 15% of the diminution in the fair value. The RBI panel on loan restructuring led by executive director B Mahaptra, has recommended promoters must make good 15% of fall in fair value or 2% of restructured amount, whichever is higher.

Bankers will also seek to limit the conversion of the loans into share instruments like optionally convertible cumulative preference shares to 10% of the outstanding loan amount. The meeting of the core group to review the restructuring norms of CDR cell comes ahead of the RBI announcing the draft guidelines on loan restructuring that is expected at the end of January. The meeting will discuss changes in CDR policies as directed by the ministry of finance and RBI, some of which are expected to make restructuring norms more stringent, particularly for promoters.

The core group of CDR cell includes the chairman and managing directors (CMDs) of the public sector banks —State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank and IDBI Bank. It also includes the MD& CEO of ICICI Bank and the chief executive of Indian Banks Association (IBA). It lays down policies and guidelines to be followed by the CDR Empowered Group and CDR Cell for debt restructuring.

Many of the proposed changes which will be taken up by the core group of the CDR cell are in line with the recommendations of the Mahapatra committee. While unveiling the mid-year monetary policy on October 30, the RBI Governor D Subbarao said that the new draft guidelines on loan restructuring based on the Mahapatra committee recommendations will be announced at the end of January.

On October 30, RBI had announced decision to raise provisioning on standard restructured assets from 2% to 2.75%. The Mahapatra committee had suggested banks must provide for 5%, against restructured loans that are classified as standard, instead of the current 2%.

The CDR cell had in the current financial year received 83 references to the tune of over R50,000 crore. It received nine new referrals worth R14,100 crore in the month of October. According to ratings agency Crisil's estimates the loans restructured by Indian banks will stand at sharply to R3.25 lakh crore in financial year 2012-13. The majority of restructuring will be in loans to the state power utilities (SPUs), and the construction and infrastructure sectors.

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