10-03-2014, 04:48 PM
Corporate Debt Restructuring at PNB
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Introduction
In spite of their best efforts and intentions, sometimes corporates find themselves in financial difficulty because of factors beyond their control and also due to certain internal reasons. For the revival of the corporates as well as for the safety of the money lent by the banks and FIs, timely support through restructuring in genuine cases is called for. However, delay in agreement amongst different lending institutions often comes in the way of such endeavors. Based on the experience in other countries like the U.K., Thailand, orea, etc. of putting in place institutional mechanism for restructuring of corporate debt and need for a similar mechanism in India, a Corporate Debt Restructuring System was evolved. One of the main features of the restructuring under CDR system is the provision of two categories of debt restructuring under the CDR system. ccounts, which are classified as ‘standard’ and ‘sub-standard’ in the books of the creditors, will be restructured under the first category (Category 1). Accounts which are classified as ‘doubtful’ in the books of the creditors would be restructured under the second category (Category 2).
Sources of Data
The primary has been collected directly from the interaction with the bank’s official. The secondary data will be taken from manuals, circulars etc. from Punjab National Bank, RBI website and CDR Mechanism Cell’s website.
Difficult recovery process
It is the recovery process where the debtors are not willing to pay and who intentionally resist or avoid recovery efforts. The recovery agent has to follow special process of recovery against the recalcitrant defaulters, in consultation with the bank.
Assets possession process
If the recalcitrant debtors do not eventually pay the dues, the movable assets charged to the bank by way of hypothecation or pledge, can be possessed by the bank or the recovery agent and thereafter auctioned or otherwise sold to recover the dues. The detailed procedure for such recovery is discussed later, after explaining the meaning of pledge, hypothecation etc.
Legal recovery process
The intervention of the court is required to possess mortgaged immovable property by the bank or its recovery agent. Also if the charged assets do not exist, or the debt is unsecured, the debtor will have to be sued for recovery of the dues by the bank/recovery agent
1. Giving notice to borrowers
While written communication, telephonic reminders or visits by the bank’s representatives to the borrowers’ place or residence will be used as loan follow up measures, the bank will not initiate any legal or other recovery measures including repossession of the security without giving due notice in writing. The Bank will follow all such procedures as required under law for recovery /repossession of security.
2. Repossession of Security
Repossession of security is aimed at recovery of dues and not to deprive the borrower of the property. The recovery process through repossession of security will involve repossession, valuation of security and realization of security through appropriate means. All these would be carried out in a fair and transparent manner. Repossession will be done only after issuing the notice as detailed above. Due process of law will be followed while taking repossession of the property
3. Valuation and Sale of Property
Valuation and sale of property repossessed by the bank will be carried out as per law and in a fair and transparent manner. The bank will have right to recover from the borrower the balance due, if any, after sale of property. Excess amount, if any, obtained on sale of property will be returned to the borrower after meeting all the related expenses provided the bank is not having any other claim against the borrower.
Present Status of CDR cases
CDR Mechanism should not be seen as a stigma by the corporate and sufficient time should be devoted on analyzing and assessing the basic viability of the projects, said Shri Nirmal Gangwal, Founder and Managing Director, Brescon Corporate Advisors Limited. Thousands of firms suffer due to deadlock between banks and clients due to asset classification problems at the first restructuring stage. It is more important to recover principal than the interest and there should be flexibility in interest rates for CDR cases, he further informed.
Out of a total number of 256 cases with an aggregate debt of Rs. 116194 crore as on March 31 2010, 215 cases with an aggregate debt of Rs 104299 crore have been approved by the CDR Cell of IDBI Bank Limited. The maximum number of cases approved by the CDR Cell belongs to the textile sector while the maximum share of the aggregate debt approved by the CDR Cell belongs to the Iron and Steel sector at 35.16%
The proposals for CDR reference by the corporate do not address issues like reasons for the present state of the Corporate, areas of Management failure, steps proposed to ensure non-repetition, promoter’s sacrifice, assumptions of CDR package and basis thereof, what happens if the entire debt is considered sustainable and sensitivity analysis at different interest rates which needs to be looked into, informed Shri Sona Lal Datta, Assistant General Manager, Consultancy Services, State Bank of India, Essar Steel, Essar Oil, Jindal Steel, Jsw, Ispat Industries, Mukund, Neelanchal Ispat, India Cements, Saurastra Cements, Arvind Mills, Dhampur Sugars, Mawana Sugar, Nfcl, Cesc, Wockhardt, Vishal Retail were some of the companies that went through CDR Mechanism, informed Shri Ravindra Loonkar, Vice President, SBI Capital Market Limited at the PHD Chamber Workshop.