New debt recast plan may involve forensic audit of projects: Report

The Reserve Bank of India is in talks with banks for a debt rejig plan that would involve individual companies passing a forensic audit report and produce a certificate endorsing commercial operations date of projects, according to a media report.  
 

Forensic audit is rarely done in case of individual companies unless the entire bank is in trouble. In 2013, RBI initiated forensic audit against United Bank of India after the bank’s bad debts shot up.

Forensic audit of individual cases will add a new dynamism in the entire debt recast process. But only those projects that can be saved by doing so will undergo this process, say bankers, even as the rest of the recast exercise would  follow the already established rules. 

RBI governor Raghuram Rajan said in his second quarter monetary policy earlier this week that the central bank will not allow any forbearance scheme. 

“There is no intent to go back to the days of forbearance or reverse the move towards transparent bank balance sheets,” he announced. 

Hence, it can be reasonably assumed that any debt rejig plan is not a bailout package. Instead, such recast would involve promoters and bankers facing similar sacrifices in their economic interest. 

If the promoter is not able to bring equity, banks will convert the debt portion into equity and thereby bringing the share of the promoters, according to the media report. 

Banks already do this in case of companies they take over under strategic debt restructuring exercise. The banks convert the debt into equity and take 51 per cent of the company that are not able to service their debt. There are a couple of companies where such an exercise has already happened but banks have been largely unsuccessful in getting a buyer for the acquired asset. 

The government and banks are also setting up funds that can invest equity in stressed projects but that is unlikely to aid the promoter.