Banks seek changes in debt rejig norms

MUMBAI: Bankers have asked the Reserve Bank of India and the finance ministry to tweak the corporate debt restructuring (CDR) norms such as allowing turfing out the management and changing the covenants of loan agreements, said executives privy to the discussions.

After the failure of such schemes as the strategic debt restructuring (SDR) scheme and the scheme for sustainable structuring of stressed assets (S4A), bankers want to return to the at least 15-year old CDR mechanism to solve the ₹7 lakh-crore toxic debt problem. At the monetary policy announcement earlier this month, RBI governor Urjit Patel had said that the regulator will come out with new guidelines to deal with stressed assets.

DNA had first reported the reviving interest in CDR in March quoting SBI chairman Arundhati Bhattacharya.

“The CDR cell gives us a lot more flexibility in trying to solve a stressed case. There is no one-size-fits-all solution here,” said the deputy managing director of a large public sector bank speaking on condition of anonymity. “In a recent meeting we have discussed these proposals to amend the CDR with RBI and the finance ministry.”

The key part of the proposal is this: bankers need powers to push errant borrowers to give up ownership and voting rights, effect a management change and even split the debt into sustainable and unsustainable parts to better restructure loans. “All restructuring proposals will be undertaken with the approval of the overseeing panel, so that there are no concerns of malpractice,” the banker cited earlier said.

To be sure, some of these facilities like converting debt into equity or into sustainable and unsustainable parts are available under different rules such as S4A and SDR, but the rules for invoking them are quite rigid. Under current CDR rules, banks can convert only 10% of debt into equity. They also don’t allow bankers to change covenants of the loan agreement, which greatly limits the ability of lenders to restructure the asset.

“When you cannot change the structure of the loan, then you have not achieved any restructuring,” a second banker said.

“Now that we have provided for most stressed cases under the asset quality review, there is no question of saving on provisions. We feel that the CDR cell is best placed to restructure the loans,” the first banker cited earlier said.

According to data available with the CDR cell, loans worth over ₹2 lakh crore were live and were being restructured under the cell as on December 31.