RBI revises CDR guidelines

MUMBAI: Reserve Bank of India has revised the corporate debt restructuring guidelines granting lenders an option to exit from the package by selling their stake to either existing or fresh lenders at an appropriate price to be decided mutually. The proposals for the restructuring package should provide for option to a particular lender or lenders (outside the minimum 75 per cent who have agreed for restructuring) who for any internal reason, does / do not fully abide by CDR Empowered Group's decision on restructuring, RBI said in a notification here on Wednesday. The new lenders shall rank on par with existing ones for repayment and servicing of the dues since they have taken over the existing dues, it said. In addition, the exit option would also be available to all other lenders within the minimum 75 per cent, provided the purchaser agrees to abide by the restructuring package cleared by the empowered group. The exiting lenders may be allowed to continue with their existing level of exposure to the borrower provided they tie up with either the existing or fresh lenders for taking up their share of additional finance, it said. The CDR Empowered Group, while deciding the restructuring package, should also decide the issue regarding convertibility (into equity) option, it said. One of the other main feature of revised guidelines is the provision of two categories of debt restructuring under the CDR system. RBI said reference to CDR system could be triggered by any or more of the creditor who have minimum 20 per cent share in either working capital or term finance, or by concerned corporate, if supported by a bank or financial institution having stake as in the first case. Though flexibility was available whereby lenders could either consider restructuring outside the purview of CDR or even initiate legal proceedings where warranted, banks / FIs should review all eligible cases where exposure was more than Rs 100 crore. The banks or FIs have to decide about referring the case to CDR system or proceed under the new Securitisation Act or to file a suit in the Debt Recovery Tribunal, it said. RBI said accounts, which were classified as standard and sub-standard in the books of lenders, would be restructured under the first category while those classified as doubtful would be restructured under the second category. The CDR would not apply to accounts involving only one financial institution or one bank. The CDR mechanism would cover only multiple banking accounts / syndication / consortium accounts with outstanding exposure of Rs 20 crore and above by banks and institutions. Referring to category one, it said there may be a case where a portion of debt by a bank might be classified as doubtful. In such a situation, if the account has been classified as standard / substandard in books of at least 90 per cent of lenders (by value), the same would be treated as standard / substandard, only for the purpose of judging the account as eligible for CDR, in books of remaining lenders. There would be no requirement of the account/company being sick, NPA or being in default for a specified period before reference to the CDR system, it said. However, potentially viable cases of NPAs would get priority. This approach would provide necessary flexibility and facilitate timely intervention for debt restructuring. In no case, requests of any corporate indulging in wilful default, fraud or misfeasance, even in a single bank, would be considered for restructuring under CDR system. The accounts where recovery suits have been filed by the lenders against the company may be eligible for consideration under the CDR system provided the initiative to resolve the case under the system was taken by at least 75 per cent of the lenders (by value). BIFR cases were not eligible for restructuring under the CDR system. However, large value BIFR cases may be eligible if specifically recommended by the CDR Core Group. This group shall recommend exceptional BIFR cases on a case-to-case basis for consideration under the system. It should be ensured that lending institutions complete all the formalities in seeking the approval from BIFR before implementing the package. On category two CDR system, RBI said there have been instances where projects have been found to be viable by lenders but the accounts could not be taken up for restructuring as they fell under doubtful category. Hence, a second category of CDR has been introduced for cases where the accounts have been classified as doubtful in the books of lenders, and if a minimum of 75 per cent (by value) of lenders satisfy themselves of the viability of the account and consent for such restructuring, subject to the certain conditions. RBI said it would not be binding on creditors to take up additional financing worked out under the debt restructuring package and the decision to lend or not to lend would depend on each creditor bank / FI separately. All other norms under the CDR mechanism such as standstill clause, asset classification status during the pendency of restructuring under CDR would continue to be applicable to this category also. A high-level group under the chairmanship of RBI deputy governor Vepa Kamesan was constituted following the announcement of Union Finance Minister in his Budget speech about a decision to set up a small group consisting of bankers and others to suggest measures to make the operations of the CDR mechanism more efficient. The revised scheme of CDR has been finalised based on the recommendations made by the working group and in consultations with the Government of India.

RBI revises CDR guidelines

Reserve Bank of India has revised the corporate debt restructuring guidelines granting lenders an option to exit from the package by selling their stake to either existing or fresh lenders at an appropriate price to be decided mutually.

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