Reserve Bank paper soon on improving of JLFs

The Reserve Bank of India has said it noted with concern the default on bond payments by Amtek Auto

S S Mundra, deputy governor, told reporters on Wednesday that the central bank keeps an eye on what is happening in the market. “In a large market, when these sort of events happen, they are a cause of concern,”  he said, while adding that “a solitary incident” like this wouldn’t change “the dynamics of the market”.

The Delhi-based automotive components group had issued secured debentures in 2010 with a 10.25 per cent coupon (interest rate). This was to mature last Sunday but the company had said before this date that it had a liquidity problem and redemption would not be possible. It has been in discussion with banks and other financial institutions to rework its debt obligations. It is also working on a plan to raise $1 billion by selling equity in businesses abroad and some non-core ones here.

Amtek's bankers have, accordingly, formed a Joint Lenders Forum (JLF), for a corrective plan.

On the JLF framework in general, Mundra said RBI would further fine-tune this mechanism to make it more effective and transparent. “We are trying to bring in some more improvements. Very soon, a paper will be out for further refinements,” he said.

The purpose was to make the consortium lending and restructuring process more transparent, he explained, and RBI was watching the way JLFs function.

The central bank had substituted the earlier structure in this regard, called the CDR Cell, with this only last year. Mundra said RBI takes individual cases at random for a more detailed scrutiny.