In an attempt to trim the mountain of debt recasts, banks are demanding higher promoter sacrifice and management change at some companies that seek debt restructuring. Consequently, even though debt recast proposals worth Rs 65,000 crore were referred to the corporate debt restructuring cell in the first half of this year, only about R30,000 crore was approved for restructuring.
“The Reserve Bank of India allows banks to charge a minimum 20% of their sacrifice as promoter funding. But in the corporate debt restructuring (CDR) cell, we are asking for 25%, and that too, upfront. This ensures promoters are serious about the restructuring,” said RK Bansal, executive director, IDBI Bank and chairman, CDR cell.
In some cases where bank sacrifice is relatively low, bankers are seeking 2% of the restructured loan amount from promoters, as allowed by the RBI guidelines on restructuring, Bansal added.
In the recent case of Winsome Diamonds, banks demanded that the company’s promoters bring in R250 crore as their share and reinstate Jatin Mehta as chairman, to ensure the R6,000-crore restructuring package went through.
The Winsome management’s request to allow splitting promoter contribution into two installments without a definitive timeline was rejected by banks. Moreover, concerns over the possible siphoning of funds at the company led bankers to reject the CDR package and seek additional information from the forensic audit team.
In the case of Electrotherm India, which is awaiting permission to restructure its R3,000-crore debt, banks say they have sought more information from promoters.
“If we are not satisfied by the information we have received. We may have to resort to a forensic audit of the company to see if there is any diversion of funds,” a banker who is part of the consortium said.
Banks have also started pushing for management changes at the time of restructuring if they find the current management is not working to its fullest potential.
“The main bank in the consortium is required to now look into the possibility of a management change. If they are convinced it is not necessary, then they are also required to explain it to the rest of the banks involved. This was not there earlier,” said a senior banker from a public sector bank.
During July-September, banks approved the recast of only eight cases worth nearly R10,000 crore, less than half of R21,266 crore restructured during April-June.
During April-June, 28 cases worth R39,521 crore were referred for