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RBI guidelines pay off, CDR cell gets just 1 referral in Aug
September, 20th 2014

In an indication of some improvement in the bad-asset portfolio of banks, only one case was referred to the corporate debt restructuring (CDR) cell for restructuring in August, sources in the know told FE.

RK Dubey, chairman and managing director of Canara Bank, said, “It is not only because lenders are detecting stress before accounts turn NPAs, there is a positive sentiment on economic recovery, and restructurings would see a dip in the net two quarters .”

Click here for graph

The sole account to seek restructuring was Surat-based Nakoda, to which banks have an exposure of Rs 1,750 crore. Its request was, however, rejected by bankers in the same month it was referred.

“Though the process was initiated in June, it was only referred in August wherein it was rejected,” a senior banker said.

The corporate debt restructuring (CDR) cell has approved Rs 24,850 crore of corporate loans in the first five months of fiscal 2015.

In the April-June period of FY14, lenders had approved R21,266 crore of restructurings.

Bankers are confident that the pace of fresh referrals has slowed owing to early action being taken by the joint lenders' forums and not all stressed accounts are going to CDR. The approvals, they say, are mostly pending cases from the previous year.

In August 2014, the cell approved restructuring of three cases worth R4,900 crore. But, in the three months to June 2013, the CDR cell got 28 referrals worth R39,521 crore; it approved 14.

In August, cases like Shreeram EPC (R2,540 crore) and Soma Isolux (R2,170 crore) were approved. Lenders and CDR cell officials said the fall in referrals was a result of the Reserve Bank of India (RBI) guidelines on early detection of stressed assets where it had directed banks, in December last year, to classify loans on the basis of the number of days interest payments are due. After that, joint lenders’ forums were formed to find a corrective action plan (CAP).

Earlier, the lead banker in a consortium used to refer accounts to the CDR cell. Now, JLF decides on restructuring the account as a CAP and refers the account to CDR cell after a preliminary study. “The JLFs are preempting the stress and trying to fix it,” said Nirmal Gangwal, founder and managing director at Brescon Corporate Advisors, a company that advises clients on turnaround plans.

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