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Poor financial health swells tally of debt recast cases

Abhijit Lele  |  Mumbai 

Debts referred for CDR rose to Rs 47,304 cr in Apr-Dec, compared with Rs 9,953 cr in year-ago period.

As 2011 draws to a close, the deteriorating quality of corporate debt is becoming a concern for lenders. The number of troubled loans referred to the corporate debt restructuring (CDR) mechanism increased five-fold in the first nine months of FY12.

A State Bank of India executive said the rise was on expected lines. "The slowdown in growth and pressure from rising interest costs may substantially increase the number of cases referred to the CDR forum in FY12," he said.



According to the CDR forum, a platform set up by banks and financial institutions, cases worth Rs 47,304 crore were referred debt restructuring in the first nine months of the current financial year, compared to just Rs 9,953 crore in the year-ago period. The number of companies referred rose from 29 to 35.

The CDR mechanism was set up in 2001 to help companies unable to repay liabilities.

Big-ticket accounts referred to the forum in the third quarter include Bharati Shipyards Ltd, Vijai Electricals, Progressive Constructions, Kemrock Industries & Exports and ICSA (India).

Birendra Kumar, managing director, International Asset Reconstruction Company, said stress on companies, listed as well as unlisted, was evident across sectors. The global economic slowdown, high interest rates and the domestic slump were impacting the repayment capacity of companies, he said. Cases referred to the CDR forum had weak financial profiles and needed timely support through steps like reworking of debt burden.

The references show a picture of the pain in the system. Besides CDR, banks are also carrying out restructuring bilaterally. Sector-specific packages are being considered for the aviation and textiles sectors.

With the economic slump and the effect of high interest rates, lenders were beginning to face the brunt of a fall in the quality of corporate loans, said a senior executive at a public sector bank.

Bankers expect the picture to worsen in the coming quarters. In fact, concerns over asset quality have recently figured among the top concerns of the Reserve Bank of India.

In the second quarter, bankers requested they be allowed to recast CDR accounts for a second time for companies or units whose debt was reworked after the financial crisis in 2008. There was a rise in CDR references in 2008-09, when the central bank, as a one-time measure, had allowed loans to be reworked a second time, without lowering their status. These (accounts) were to be treated as standard assets on bank books. The banking regulator had given special dispensation only for viable units that faced temporary cash flow problems in the aftermath of the global financial crisis.

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First Published: Tue, December 27 2011. 00:09 IST
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