UTI, GIC and LIC to participate in CDR system

The Reserve Bank of India (RBI) has allowed restructuring of debt of "wilful" defaulters, other than those involved in frauds or diversion of funds with malafide intentions.

In its revised guidelines on the corporate debt restructuring (CDR) mechanism, RBI has granted discretion to the core group in dealing with such wilful defaulters.

The central bank has also allowed the CDR mechanism for small and medium enterprises (SMEs) to consider such wilful defaults after verifying whether a borrower is in a position to rectify the default, provided an opportunity under the debt restructuring mechanism is granted.

The RBI said that corporates indulging in frauds and malfeasance even in a single bank will continue to remain ineligible for restructuring under the CDR mechanism as was until now and wants the core group to ensure that cases involving frauds or diversion of funds with malafide intension are not covered.

The CDR core group consists of chief executives of Industrial Development Bank of India, State Bank of India, ICICI Bank, Bank of Baroda, Bank of India, the Punjab National Bank and the Indian Banks' Association (IBA) and deputy chairman of IBA, representing the foreign banks in India.

The RBI has now permitted institutions like the Unit Trust of India, General Insurance Corporation, as well as the Life Insurance Corporation to participate in the CDR system, as these institutions have assumed exposures on certain borrowers.

Against the earlier practice of 75 per cent of the lenders by value needed for carrying through a CDR proposal, the revised guidelines require a decision by at least 75 per cent of the creditors by value and 60 per cent of creditors by number.

This provision gives banks with normally low exposure, particularly foreign banks which mostly lend for working capital, to have a say in deciding on a restructuring mechanism. The minimum outstanding loan eligible for restructuring has also been reduced to Rs 10 crore from Rs 20 crore.