With the number of companies queuing up for debt recast jumping by a third in FY 2013, the banking industry’s common platform for handling such cases may get some external help.
The move is aimed at quickening the pace of entry and exit of companies from the corporate debt restructuring mechanism.
Companies facing financial difficulties due to factors beyond their control and also due to certain internal reasons are referred to the CDR cell, either by their lenders or by the companies themselves with the support of lenders.
While the CDR cell has built up a wealth of in-house knowledge since inception in 2001, external industry experts could bring a fresh perspective in handling cases of corporate distress, said a banker in the know of the development.
The proposal that is being examined by the Reserve Bank of India and the Finance Ministry is that the CDR cell will zero in on experts, mainly from public sector undertakings, who can be called for its meetings as special invitees.
To begin with, industry experts will be drawn from major sectors, such as steel, power, roads and textiles.
These experts are expected to suggest ways, including alternative/cheap sources of raw materials, harnessing new technology to bring down manufacturing costs and tap new markets, to revive the fortunes of companies referred to the cell.
The number of companies that have lined up before the CDR cell for debt restructuring has seen a substantial jump in the last couple of years.
The reasons for companies knocking on the cell’s doors include demand slowdown, rise in raw material prices and policy bottlenecks (with clearances for forest, environment, resettlement and rehabilitation hard to come by).
Cases on the rise
In FY 2013, the CDR cell received 130 references (against 87 in FY 2012) with an aggregate debt of Rs 91,648 crore (Rs 67,889 crore).
As at March-end 2013, the total number of CDR cases approved by the cell stood at 401 (against 292 as at March-end 2012) aggregating a debt of Rs 2,29,013 crore (Rs 1,50,515 crore).
The top five sectors in terms of aggregate debt that are currently being restructured are: iron and steel (23 per cent); infrastructure (9.57 per cent); power (8.06 per cent); textiles (7.76 per cent) and construction (6.27 per cent).
The CDR cell was set up in 2001 for the revival of companies facing financial difficulties as well as for the safety of the money lent by banks and financial institutions through timely support by way of restructuring of genuine cases.
The CDR mechanism covers multiple banking accounts, syndication/consortium accounts, where all banks and institutions together have an outstanding aggregate exposure of Rs 10 crore and above to a company.