India Inc prefers to rejig loans outside CDR

Outstanding restructured advances of 10 large banks stood at Rs 1,77,333 cr, of which only Rs 58,366 cr is under corporate debt restructuring cell

India Inc now prefers to restructure loans outside the corporate debt restructuring (CDR) cell on a bilateral basis with their banks. According to bankers, several companies have in recent months requested lenders to restructure their loans without referring the proposal to the CDR cell.

A review of restructured loan book of 10 large banks, including State Bank of India (SBI), Punjab National Bank (PNB), Canara Bank and Bank of Baroda, corroborates the trend. Their outstanding restructured advances stood at Rs 1,77,333 crore, out of which the tally of those under CDR cell was Rs 58,366 crore. The balance, at over 50 per cent, was under non-CDR category, including small and medium size enterprises (SMEs), according to estimates of CARE Research.

A senior executive in the stressed assets management group of SBI told Business Standard, “it is more in the minds, a stigma that many companies want to avoid.” Also, when a company goes to CDR, it impacts its standings with bankers and limits the scope for fresh funding. People are aware of this and, hence, are opting for bilateral loan restructuring,” the SBI official said. The country’s largest commercial bank has recently restructured over Rs 1,000 crore loans of a power company outside the CDR cell.

Bankers also explained it was easier to restructure small ticket loans bilaterally. “In the current environment, the cash flows of many small and medium-sized units have been stressed. It is easier to restructure loans offered to these companies outside the CDR mechanism,” a senior executive of Indian Banks’ Association (IBA), the industry body of banks, said.

The trend is seen in the case of industrial, services and agricultural sectors and retail segment. India Ratings & Research Senior Director and Head (financial institutions) Ananda Bhoumik said while dealing with small and medium size enterprises, banks could carry out negotiations quickly through face-to-face interaction.

This route is useful when only a few lenders are involved, cash-flows are less complicated and ticket-size is small, he said. There are some big size accounts, which have been restructured under special arrangement for a particular sector. So, they are outside the CDR mechanism.

Take the case of the aviation sector, where loans and credit facilities to government-owned Air India were recast under the sectoral arrangement.

Also, working capital loans to financially precarious power distribution companies have been or are being reworked.

Large size loans involve protracted negotiations and asset collateral valuation, and this consumes time, said a senior executive with a large public sector bank.