Aggrieved YES Bank writes to CDR cell for forum exit

Minority lenders accuse large banks of twisting restructuring packages in their favour

The chief executive (CEO) of a small private sector bank was aghast to find senior officials of two large state-owned banks supporting each other at a recent meeting of the Corporate Debt Restructuring (CDR) cell and settling for a package that suited them, despite opposition from minority lenders.

“It was something like if you back me this time, I will support you in the next case. They structured the package the way they wanted, despite us expressing our discomfort. I have often voiced my concerns on how minority lenders’ interests are neglected, but this practice continues,” he said.

The growing discontent among small- and mid-sized private banks over functioning of the CDR cell is palpable. YES Bank, India’s youngest and fourth-largest private bank, has already written to the CDR cell, expressing its desire to exit the forum.

“It is not working out for us. Some of the large banks want to delay the recognition of bad assets to show higher profitability and settle for restructuring packages that are not viable. We have to tag along even if we don’t want to restructure the loans because as a member bank, you cannot opt out,” said a senior official of YES Bank.

CEOs and top officials of three other private banks told Business Standard they were not satisfied with the “undemocratic” way of deciding loan restructuring packages in the CDR cell. But, these bankers were not planning to pull out immediately, due to an increase in the number of restructuring cases in the current uncertain economic environment.

“The general impression is that big banks are arm-twisting, while small banks’ interests are getting obliterated. But when more and more restructuring cases are coming up, we cannot afford to distance ourselves from the CDR cell,” said the CEO of a mid-sized private bank. He added the cell should mandate personal guarantees of promoters and allow conversion of loans into preference shares only in select cases.

However, top officials at the cell denied the forum was only catering to the interest of large lenders.

“I am not aware of any discontent. All the decisions are made in a democratic way. If they have a problem, they can write to us,” said one official.

According to rules, a debt restructuring proposal can be referred to the CDR cell by creditors who have at least 20 per cent share in the loan. The company can also approach the forum on its own, seeking restructuring of its debts, if it has support from banks that have 20 per cent or more exposure in the loans.

If 75 per cent of creditors by value agree to restructure the loans and decide the terms and conditions, the remaining lenders have to accept the majority decision.