Want RBI to allow them to decide on upfront payment.
Fearing derailment of restructuring of a large number of ailing firms, banks have sought restoration of flexibility in calling for promoter contribution to put companies back on the restructuring track.
On March 30, the Reserve Bank of India (RBI) made it compulsory for promoters to bring upfront at least 15 per cent of the money that bankers would lose in debt restructuring packages.
The communication, in the form of a clarification, made the process of revamp tougher, bankers said. Earlier, there was ambiguity on the time when promoters whose companies are being restructured have to bring their share of the commitment.
Banks, under the aegis of the corporate debt restructuring (CDR) mechanism, reviewed the implications of the new RBI norms earlier this week and decided to approach the regulator. “It could make most packages a non-starter. Bankers have preferred to approach RBI for retaining the flexibility,” said a senior executive with a large public sector bank.
Till now, banks have been providing anywhere between six months and two years to promoters. This was worked out to ensure effective restructuring.
“Most promoters do not come with a revamp proposal at the first instance. They knock on the doors of banks only when all efforts to improve their financial condition fail. At this stage, they have already put money mostly to fund losses,” said the debt restructuring head of a public sector.
While RBI’s intent to ensure restructuring in genuine cases was understandable, distressed promoters, especially of medium- and small-sized companies, were left with little resources they could bring upfront for revamp, he said.
The central bank had put in place a liberal restructuring package after the Lehman crisis in September 2008 to protect viable projects from the global financial crisis. The package allowed second-time restructuring without lowering the status of the company or the loan account.
As the economy was on a firm recovery path, banks would like to take up restructuring proposals where promoters were serious about projects and willing to cough up funds. Fewer proposals are expected to come up for recast now with cash flows and demand improving.
Restructuring can be taken up only in cases where financial viability is established and there is a reasonable certainty of repayment from the borrower. Benefits are available only in cases where bank dues are fully secured and industrial units become viable in seven years. The borrowers get a maximum of 10 years, including the moratorium period, to repay restructured advances.
According to banking sources, CDR is handling net 120 cases involving total debt of Rs 65,670 crore. Reflecting the trying times for Indian companies due to the global financial meltdown, the number of cases referred to the debt revamp mechanism went up in 2008-09 (34 cases ) and 2009-10 (31 cases). The flow of cases was subdued in 2005-06 (19 cases), 2006-07 (7 cases) and 2007-08 (10.
The number of cases approved for restructuring went up to 29 in 2008-09 and 23 cases in 2009-10.
