A weak macroeconomic environment and a slower-than-anticipated recovery cycle have resulted in a larger number of cases being referred for debt restructuring, says RK Bansal, chairman, Corporate Debt Restructuring (CDR) Cell. In an interview with Vishwanath Nair, he talks about the CDR Cell?s activities this year, the level of slippages in the restructured loans and the impact of new regulations. Excerpts:
What is the year looking like for the CDR Cell?
Are you seeing a flurry of cases being referred to the cell?We have been seeing more cases coming into the CDR system and we are also seeing higher amounts coming in now. It has mainly remained in the infrastructure sectors, including steel, power and engineering procurement and construction. As on December 31, the outstanding referred cases stood at Rs 4,07,656 crore, while the cell approved cases worth Rs 2,89,298 crore.
There is an opinion among the regulator and the government that the CDR mechanism is being misused by errant borrowers. What is your opinion?
When the process was started, it was done to take care of the stress in the economy at that point in time and a major reason was that we wanted to protect the value of the assets. Before that, restructuring was happening at an individual level at each bank. It used to take more than one year at times.
The process was not harmonised. The purpose of CDR Cell was that bankers come at one place and take a joint decision. Whatever the CDR Cell does is under the ambit of the rules set by the RBI. Technically speaking, any system can be misused by people, but it?s not that the misuse is by everyone. There have been genuine difficulties, due to external reasons for many promoters. In the last two years, if you see, we have tightened a lot of norms. Once in a while, we come across someone who has given us incorrect information; however, that is difficult.
The RBI has made independent assessment of CDR cases above R500 crore. Do you think an additional level of decisionmaking will slow things down further?
Some processes are being expedited; when we do not need to go through the flash report, cases can directly be referred to the CDR Cell. The independent committee will only look at the fairness of the restructuring package. Whether it is fair to the bankers and the borrowers… I hope it doesn?t result in a delay.
Do you think we will see a reversal in the stressed asset situation soon?
Things are somewhat improving now. A number of decisions have been taken by the Centre recently, which will start showing their impact now. Many of the EPC companies had got their dues stuck at places; slowly, those will be released now. Moreover, as projects get functioning again, these EPC contractors will also get their business back. Maybe it will take about six months or so, but things will improve.
What has been the failure rate in restructured assets? Do you think the situation is still under control?
The failure rate is about 10%. This can go up to 15% maximum. The cases which were approved in 2011-12 were based on some presumption that the economy will have a good growth rate, all infrastructure projects will do well and all the approvals will come in on time. But that has not happened. Maybe a few cases in some segments, let?s say EPC or steel, etc, will not be able to achieve the projections. So, some of them may require a second restructuring. As soon as a second restructuring happens, we count it as a failure, because an account is classified as a non-performing asset by the banks. I believe this can be controlled. Rating agencies, sometimes, presume 25-30% when they work out their strategy, slightly on the higher side.
