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Corporate Debt Restructuring Issues

CDR (Corporate Debt Restructuring) is a voluntary mechanism for banks and financial institutions to restructure debt of companies facing financial difficulties. While intended to help stressed companies, CDR was often misused by banks to delay classifying loans as non-performing. As a result, many restructurings under CDR are now failing, with high rates of exited cases becoming bad debts. The new SDR (Strategic Debt Restructuring) mechanism may have better results by changing borrower attitudes, as banks now have the option to take over defaulting companies and insist on timely repayment plans.

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47 views1 page

Corporate Debt Restructuring Issues

CDR (Corporate Debt Restructuring) is a voluntary mechanism for banks and financial institutions to restructure debt of companies facing financial difficulties. While intended to help stressed companies, CDR was often misused by banks to delay classifying loans as non-performing. As a result, many restructurings under CDR are now failing, with high rates of exited cases becoming bad debts. The new SDR (Strategic Debt Restructuring) mechanism may have better results by changing borrower attitudes, as banks now have the option to take over defaulting companies and insist on timely repayment plans.

Uploaded by

shilpee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CDR

Corporate Debt Restructuring mechanism is a voluntary non statutory mechanism


under which financial institution and banks come together to restructure the debt of
companies facing financial difficulties.

 Did firm try for CDR package?


CDR, or corporate debt restructuring, was introduced in the 2004-05 period, and
allowed banks to restructure stressed assets. By all indications, the CDR window
was not used as it was intended. Restructuring was often done just to delay the
classification of an account as a non-performing asset. Many of these
restructurings are now coming home to roost

If CDR failed, why?

 Earlier this week, Mint’s Vishwanath Nair had reported that the rate of failed
exits from the CDR cell remain worryingly high. A failed exit essentially
means the restructuring did not work and the account has gone bad.
 In the first half of this financial year, 24 cases worth 19,303 crore have exited
the cell as failures. Last financial year, failed exits had added up to 27,015
crore. The successes have been far fewer. Only about 3,200 crore in cases have
successfully exited the cell since the start of last fiscal.
 Will the experience with SDR be any different? There are reasons to believe
that it will, but there are an equal number of reasons to be cautious.
 The one big and important change that SDR has started to bring in is a change
in the attitude of borrowers. Until now, corporate borrowers in India (like
anywhere else) believed in the adage: “If you owe the bank a thousand, it’s
your problem. If you owe a million, it’s the bank’s problem."
 Now that banks have the option to take over a defaulting borrower’s company,
that confident swagger has been toned down. Large stressed companies have
been forced to sit across the table and hammer out a plan to repay loans.
Bankers are also insisting on time bound plans. Or else.

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