Loan recast requests continue to pile up at the CDR cell

F E  :Vishwanath Nair | Mumbai | Updated: Feb 05 2014, 08:44 ISTFE

Union Bank of India restructured loans worth Rs 1,004 crore in the October-December period...

Even as the Reserve Bank of India (RBI) wants any loan recast proposal of over Rs 500 crore to be vetted by an independent panel, requests continue to pile up at the corporate debt restructuring (CDR) cell.

The run rate for referrals remained high at Rs 11,000 crore in January, albeit lower than the Rs 18,500 crore in December.

Among the bigger requests for restructuring is the one put forward by the Hyderabad-based IVRCL, which is looking for easier terms to repay Rs 6,500 crore — a 21-member consortium led by State Bank of India will decide on the request. Going by recent evidence, however, it’s likely bankers will give in to the borrower’s request. Smaller firms that have put in requests for lenient repayment conditions include the Nagpur-based Gupta Coal India, promoted by Padmesh Gupta and with interests in coal, mining and logistics, which wants Rs 2,000 crore recast. Power infrastructure provider Deepak Cables — based in Bangalore and promoted by K Surya Rao — is also hoping to recast Rs 1,000 crore.

Between January and December, the value of loans recast was close to Rs 74,000 crore while the value of loans referred crossed Rs 1 lakh crore. Given the slowdown in the economy, bankers believe more borrowers will need help to tide over the situation. They anticipate at least Rs 15,000-20,000 crore will be restructured before March. At ICICI Bank, for instance, restructured advances during the quarter were Rs 1,776 crore and the management indicated there was a pipeline of Rs 3,000 crore.

VR Iyer, chairman and managing director, Bank of India, had said after announcing the bank’s October-December results that the rate of slippages from restructured assets to NPAs was on average about 16%. Iyer observed that close to Rs 300 crore had been restructured during the quarter and the estimated pipeline was around Rs 1,500 crore. “Most of the proposals in the CDR cell will be restructured this quarter itself,” the CMD confirmed.

Meanwhile, the central bank has put in place a framework that will help banks spot signs of trouble early in the day. Even if a company is late on its payments of principal or interest by less than 30 days, banks will need to classify these as specially mentioned accounts (SMAs); a delay over over 61 days would necessitate the setting up of a joint lenders’ forum (JLF) that will decide how the loan is to be treated. The JLF must finalise a restructuring package within 30 days if lenders find it technically viable.

To incentivise banks to resolve issues quickly, the central bank has said it will allow them better regulatory treatment of stressed assets if an action plan gets under way. However, the lack of solutions will attract accelerated provisioning. The RBI will permit banks to sell their loans at a loss, and to amortise the costs over two years, which will help because the hit to the P&L would be staggered.

Union Bank of India restructured loans worth Rs 1,004 crore in the October-December period, of which Rs 640 crore is owed by state discoms. The bank has a restructuring pipeline of Rs 1,800 crore for the January-March period, a big chunk of which will be accounted for by one account, Arun Tiwari, CMD, observed.

CDR references drop sharply in December

Abhijit Lele  |  Mumbai  

December 27, 2013 Last Updated at 00:50 IST

Bankers, however, say it will be premature to celebrate

Did Santa Claus bring good news to bankers who have been burning mid-night oil to restructure debt of stressed companies?

The closing month of calendar year 2013 (December) saw dip activity at the Corporate Debt Restructuring (CDR) cell, with just four cases involving aggregate debt of about Rs 4,500 crore being referred for recast. In the month of November, the CDR forum received just three cases with aggregate debt of Rs 4,000 crore.

Top bankers including those at the CDR cell while showing “signs of relief” are prompt to caution that it is premature to open champagne bottles. There is enough stress in the system due to long-drawn slowdown and burden of interest costs on companies.

"Normally, there is a last minute rush to refer cases at the end of each quarter. But this time around there was no such pressure on us," said a relaxed IDBI Bank executive.

Banks and corporates sent loans of more than Rs 28,700 crore involving 14 cases to the forum in October-December 2013, according to provisional data from CDR.

The large cases like ABG Shipyards and Gujarat NRE Coke referred in October swelled the tally. The infrastructure, textiles and iron and steel sector still lead the pack of stressed companies that are under debt recast.

A senior public sector official said many large groups, especially those in roads, power and other infrastructure segments are trying to sell assets and restructure operations. Perhaps this would relieve them from the need to come to banks for recast.

Dun and Bradstreet in its outlook for 2014 said maximum distress in debt was witnessed in the iron & steel sector and infrastructure sector. They have high share in stressed asset book (NPAs plus restructured loans) of public sector banks.

With continued deceleration in the industrial growth, pick-up in activity in infrastructure and iron & steel sector is expected to be delayed. Since concentration of distressed assets is higher in these sectors asset quality deterioration in Indian banks is set to worsen, it said.

Rating agency Icra has painted a similar picture about the stress levels of banks. In light of large debt recast under CDR, standard restructured advances are slated to grow from 5.3 per cent at end of March 2013 to 6-6.2 per cent by March 2014, it said.

Abizer Diwanji, National Leader - financial services at Ernst & Young India said life will be tough in 2014. Loans given in boom time have showing stress now when the economy is growing at slow pace.

The Reserve Bank of India has proposed more steps tighten rules for restructuring and non performing assets. They will have definite impact on the restructuring activity, he said.

Banks likely to restructure Shree Ganesh’s Rs 2.5k-cr debt

Saikat Das, ET Bureau | 12 Dec, 2013, 11.24AM IST 

MUMBAI: Nearly two dozen lenders to Shree Ganesh Jewellery House, a Kolkata-based jewellery maker, are likely to approve restructuring of the company's Rs 2,500 crore of debt, three bankers said. "Banks are planning to refer it to the CDR (corporate debt restructuring) cell," one of the bankers quoted above told ET. "We will shortly take the final decision on this. We are discussing the matter and are in touch with the company management." Restructuring refers to relaxation of the original terms and conditions of a loan agreement when a borrower fails to repay the debt. 

CDR cell is a platform where lenders jointly draw a scheme of repayments in such casesRsAn email and calls made to Shree Ganesh did not elicit any response. State Bank of India the country's biggest lender, has an exposure of about Rs 660 crore to the company. The jewellery maker's loan account has not yet turned a non-performing asset (NPA) as it falls short of the 90-day non-payment cycle by a few days, banks said. 

Some lenders to Shree Ganesh are a little apprehensive over the genuineness of an export transaction of Rs 250 crore entered by the company in the form of bill discountingRsThey plan to raise the issue in the next meeting. "Banks are still judging it," said one of the three bankers quoted earlier. "If it is proved to be fraudulent, we will review the entire case. 

One of their offshore clients is refusing to oblige as it claims it did not receive exported goods." RBI governor Raghuram Rajan had, on Monday, said that in case of malfeasance, borrowers should not be allowed to restructure loans. Rating company Care pointed at credit quality concern for Indian banks. Deterioration in asset quality continued to be the major concern for banks, especially public sector banks, Care said in a note released on Wednesday. "Slowdown in the overall economy and high interest rates have affected the debt repayment capacity of the borrowers," the note said. According to an estimate, gross bad loans of 40 listed banks rose 37% year-onyear to Rs 2.3 lakh crore as of September.

Lenders approve Lanco Infra’s debt restructuring plan

BL : Rishikumar 12 Dec 2013

In a major relief to cash-strapped Lanco Infratech Ltd, a consortium of lenders, headed by IDBI Bank Ltd, on Wednesday approved a corporate debt restructuring (CDR) package for the holding company.

The decision to clear the Rs 7,000-crore CDR package and release Rs 3,500 crore towards working capital will enable the company to resume EPC (engineering, procurement and construction) operations, which were hit by a cash crunch, said T. Adibabu, Chief Operating Officer, Finance, Lanco Infratech. After securing the approval at the CDR Empowered Group meeting held in Mumbai, Adibabu toldBusiness Line that a majority of the 27 banks in the consortium has cleared the package and the remaining few are expected to conclude the process soon.

The whole process will be completed before the month-end. “Within a week, we expect to get a letter of approval which will also outline various terms,” he said.

Under CDR, banks typically increase the repayment period of loans to stressed borrowers, offer a moratorium and reduce lending rates. A CDR is approved if at least 75 per cent of the creditors by value of the loan and 60 per cent by number back the proposal.

Lanco hasn’t released the details of its CDR package.

“With the CDR package through, the company will now have access to Rs 3,500 crore, which includes Rs 2,500 crore as fund-based money and the Rs 1,000 crore as non-fund. This will enable us to resume EPC works and pay up contractors and others. The company has more than Rs 25,000-crore worth of contracts,” Adibabu said.

The diversified infrastructure company has had to pass through several tough quarters amid low plant load factor at its power stations hit by fuel concerns and slow execution of EPC contracts due to regulatory delays. To add to this, the cash flows, too, were hit. The company had posted a loss of Rs 581 crore in the second quarter ended September 30. The company has a total debt of Rs 36,000 crore. While its initial concern is about the debt, analysts believe it will be several quarters before the situation turns around for the company.

DIVESTMENT

Lanco Infra had earlier hinted at divesting a stake in some projects, including at Udipi, Budhil, Babandh and other road projects. It is also seeking to divest a stake in its solar power project. However, the market conditions and investor sentiment had impacted the stake sale process.

“We hope to conclude these as the sentiment gets better and international and domestic investors see good times ahead,” Adibabu said.

A short-term breather Under CDR, banks typically increase the repayment period of loans to stressed borrowers, offer a moratorium and reduce lending rates. A CDR is approved if at least 75 per cent of the creditors by value of the loan and 60 per cent by number back the proposal.

(This article was published in the Business Line print edition dated December 12, 2013)

Finance Ministry asks banks to have independent corporate debt restructuring oversight panel

Press Trust of India | Updated On: June 07, 2013 00:27 (IST)

Mumbai: To restrict the use of loan restructuring mechanism only to deserving cases, the Finance Ministry on Thursday asked bankers to have an independent oversight committee that will vet the corporate debt restructuring (CDR) applications.

Financial Services Secretary Rajiv Takru asked banks to have the committee consisting of an expert from the legal field, investigative agencies and a finance professional, to make sure that there will not be any scope for allegations.

"An independent oversight mechanism which will not have any government representative or any serving banker, but some experts who can scrutinise from the correctness point of view whether the case referred is genuine," Mr Takru told reporters on the sidelines of the Skoch summit in Mumbai.

The proposal comes amidst allegations of banks using CDR mechanism - under which the repayment tenor of a loan is delayed - to take care of a borrower's temporary needs in times of stress. CDR cases have more than doubled in the past fiscal and are set to increase further this fiscal year.

According to the CDR cell, as on March 31, 2013, loans worth Rs.2,29,013 crore, or 401 companies' loans, were restructured, which is more than double the amount from FY12.

Last week, the RBI had increased provisioning for the recast loans massively and also made loan recasts tougher by increasing promoters' contribution.

Under the new rules, from June 1, banks must set aside provisioning for 5 per cent of the value of a loan that is newly restructured, from 2 per cent previously.

Under the newly revised norms, loans classified as sub-standard would attract a provision of 15 per cent, against the current 10 per cent. For unsecured loans classified as sub-standard assets, an additional 10 per cent provision would have to be made over the current 15 per cent.

Thus, total provisioning for sub-standard unsecured loans would now be 25 per cent, against 20 per cent earlier.

Mr Takru cited a recent case of a corporate conniving with lenders to get its loans restructured and immediately approaching the Board for Industrial and Financial Reconstruction in two months which froze the repayment, so the promoter got away scot-free with the money.

Going to the CDR committee will be non-mandatory for a bank and the committee will act as a pure advisory body, helping the bank vet a particular case, he said.

To be impartial, the officers in the committee should be hired by the Indian Banks Association itself, Mr Takru said, adding the government has some names in mind.

Additionally, on the gross NPAs, which have declined to 3.5 per cent as of March from 3.9 per cent at the end of the preceding quarter, Mr Takru asked banks not to show any flexibility.

In case of provisions of the SARFESI Act being used, the bank should issue auction notices of the asset as soon as possible and dispose of the asset. In case they are not able to get the reserve price, they should take over the asset and place it in their books, to be sold at a later date once the market revives, he said.

He also said while lending, banks should make sure that they have a collateral at least of the equal value as the loan amount, in order to not getting hit by NPAs in the future if the account turns bad.

He also asked banks to submit the reports on agri debt waiver by June 30, but added that they have not found any substantial violations in agri debt waiver cases.

Gammon India’s corporate debt restructuring cleared

Under the agreed CDR terms for Gammon, loan repayment will be stretched to 10 years and the company gets a moratorium of two years. Photo: Priyanka Parashar/ Mint

Live MInt : Didesh Unnikrishnan :Thu, Jul 04 2013. 11 58 PM IST

Loan repayment to be stretched to 10 years, Gammon India to get moratorium of two years on servicing it

Mumbai: Creditors have approved a Rs.13,500 crore corporate debt restructuring (CDR) package for Gammon India Ltd, offering the engineering and construction company a breather from a crisis brought on by slower economic growth and project delays, but adding to the growing pile of restructured loans at banks.

The CDR cell, a forum of lenders, has cleared the proposal and the process of loan restructuring will start soon, said two bankers familiar with the proposal. They declined to be named because of the sensitive nature of the matter.

Under the terms agreed for the CDR, the loan repayment will be stretched to 10 years and Gammon India will get a moratorium of two years on servicing it. The interest rate on the loan amount will be reduced by 1-2 percentage points to 11-12%.

“The loan recast will definitely aid an improvement in the operations of the company. Banks have approved this case, recognizing that there is a genuine need for the firm to avail this facility,” said a banker with a state-run bank, one of the creditors of Gammon India, who also did not want to be named.

Emails sent to officials at Gammon on Wednesday remained unanswered as of press time.

Gammon India and other infrastructure companies are struggling amid a slump in economic growth, which fell to a decade-low of 5% in the year ended March, as companies put new investments on hold. Infrastructure firms have also been battling a credit crunch amid high borrowing costs that made it difficult for many borrowers to repay debt.

Delays in securing mandatory government approvals have stalled project execution and impeded cash flows at several infrastructure firms. In April, according to finance ministry estimates, about 215 infrastructure projects were stalled, involving a collective outlay of over Rs.7 trillion.

Shares of Gammon India surged as much as 9.6% in intra-day trading on investor speculation about the loan recast. They closed up 3.481% at Rs.19.4 on the BSE on a day the benchmark Sensex gained 1.22% to 19,410.84 points.

In Gammon India’s case, out of the total debt amount, banks have a fund-based exposure of aboutRs.3,500 crore Fund exposure is the loan amount given by the bank to the company. Non-fund exposure is mainly in the form of performance guarantees or similar facilities

. Leading lenders to the company include ICICI Bank Ltd and Canara Bank Ltd. Banks will restructure the non-fund exposure of the company to the extent at which the facility has been used, said one of the officials cited above.

The individual exposure of each bank to Gammon India could not be ascertained as the banks declined to divulge details.

As of 31 May, Indian banks had loans outstanding of Rs.7.7 trillion to the infrastructure sector.

Under CDR, bankers typically extend the repayment period, cut lending rates and sometimes agree to forego a part of the money that’s owed to them. Banks may also offer a repayment holiday. A CDR is approved if at least 75% of the banks by value of the loan and 60% by number agree to proposal.

For the quarter ended 31 March, Gammon India reported a net loss of Rs.124.98 crore, largely because of some one-off items on its overseas operations, which included provisions made by the company in connection with investments and advances.

Gammon joins several companies that have recast loans. In the recent past, banks have restructured the loans of companies including Orchid Chemicals and Pharmaceuticals Ltd (about Rs.3,000 crore),Hindustan Construction Co. Ltd and Suzlon Energy Ltd.

Analysts said banks are going ahead with loan recasts despite the higher provision they need to make on such loans, failing which they would need to categorise these loans as non-performing assets (NPAs), which attract even higher provisions.

“Gammon restructuring was on expected lines. This is a good move for banks also as otherwise they would be forced to classify this as NPA,” said Hatim Broachwala, an analyst at Karvy Stock Broking Ltd.

On a cumulative basis, total restructured loans under the CDR mechanism have crossed Rs.2.29 trillion, or 4.4% of total loans given by Indian banks, as of March. The aggregate figure for bilateral loan recasts is not available, but bankers said such recasts may nearly equal the CDR figure. That would take the total restructured assets of the Indian banking industry to around Rs.4 trillion.

“It (Gammon CDR) seems to be in the ordinary course of things,” said Vaibhav Agrawal, vice-president, research at Angel Broking Ltd. “There are going to be more such cases at least in the next 1-2 years. Probably the peak of restructuring is over but things are not getting any better.”

Indian banks began large-scale restructuring in the aftermath of the 2008 global financial crisis that followed the collapse of Lehman Brothers Holdings Inc.

Indian banks have recast loans of companies across sectors such as textiles, real estate, power and gems and jewellery. About 10-15% of the restructured advances are estimated to have turned bad in the first cycle of loan recasts, but this time the proportion will be higher at around 15-20%, analysts said.

Pain not yet over: SBI refers 3 cos to CDR for Rs 3430cr

 
Saikat Das :Moneycontrol :Tue, Feb 21, 2012 at 12:04  

India's largest lender the State Bank of India (SBI) referred three loan accounts including Bharati Shipyard (BS), ARSS Infrastructure and Vijai Electricals (VE) to the Corporate Debt Restructuring (CDR) cell. The sum total of credit exposure in these companies would be around Rs 3,430 crore by the bank, sources familiar with the development toldMoneycontrol.com.

The SBI share of loans to BS comes around Rs 1,655 crore out of total exposure at Rs 5,650 crore by a consortium of 15 lenders. The bank lent Rs 773 crore to ARSS out of total loans around Rs 1,600 crore by eight lenders. For VE, it stood at around Rs 1,000 crore as against total Rs 2,200 crore by seven banks.

Credit exposure at a glance:

Company	SBI exposure (Rs in crore)	Total exposure (Rs in crore)
Bharati Shipyard	1,655	5650
ARSS Infrastructure	773	1,600
Vijai Electricals	1,000	2,200

Figures are written on approximate basis.

At the time of CDR proposal submission in the third quarter (Q3), all three companies remained standard assets. Companies have been repaying the interest rate. In anticipation of defaults (before the principal payment becomes due), they were referred to CDR cell. As per RBI norms, a bank has to make provision of 2% on any restructuring of standard asset.

Under the regulatory frame work of the Reserve Bank of India (RBI), the CDR forum caters to an official platform for both the creditors and borrowers to amicably and collectively evolve policies for working out debt restructuring plans.

The CDR cell will make the initial scrutiny of the proposals received from creditors. It happens in two stages: flush stage and final report stage, all related to the economic viability study of the proposal. A loan account can be referred to the CDR cell when at least 75% of the banks (by value) and 60% of creditors (by number) agree to resolve the case under CDR system.

The asset quality concerns cast a shadow on the SBI's Q3 performance. The gross non-performing asset (NPA) ratio stood at 4.61% as against 4.19% in the previous quarter (Q2). The net NPA ratio too rose from 2.04% to 2.22 sequentially.

According to the SBI chairman Pratip Chaudhuri, as much as one fifth of fresh slippages had come from a single company (read Kingfisher Airline).

"So, if you look at the total slippages (net increase) of Rs 6,152 crore, one company alone accounted for around Rs 1,500 crore," the SBI boss said while announcing Q3 results.

However, Chaudhuri did not expect its Air India (AI) exposure turning into an NPA account. The lender has extended a fully secured Rs 1,100 crore loan as cash credit facility to AI.