Number of Corporate Debt Restructuring (CDR) Cases rose Sharply to 35 in the First Half of 2011-12

The number of corporate debt restructuring (CDR) cases rose sharply to 35 in the first half of 2011-12 as compared to 22 in the first six months of 2010-11.

The corresponding amount of loan referred also increased by nearly seven times to Rs 34560 crore in the first half of 2011-12 as compared to Rs 5180 crore in 2010-11. The amount of loan referred was the highest amount in the last eight years.

There was thus an increase both in the number of cases as well as in the value of the loans being referred for recast.

According to bankers, the trend of rising CDR cases is unlikely to change in the next six months as companies continue to face difficulties because of the macro-economic environment and the uncertainty in developed nations.

During the first half of 2011, banks restructured around four per cent of their advances. PSU banks had to deal with higher restructuring proposal than private lenders. The State Bank of India restructured loans of over Rs 500 crore during the quarter, taking the cumulative restructured amount to Rs 35400 crore.

What is CDR?

CDR is a mechanism for restructuring debts of viable corporates who have been affected by internal or external factors. CDR cases include cases which are outside the purview of the Board for Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and other legal proceedings.

There are certain conditions on the cases that can be recast under CDR. The mechanism involved in the recast covers only multiple banking accounts/syndication/consorti-um accounts with banks and financial institutions that have an outstanding exposure of at least Rs 10 crore.

The loans can be considered for restructure only if 75 per cent of the creditors by value agree to a restructuring package of an existing debt, this will be binding on the remaining creditors. Once a case is referred to CDR, there is a standstill agreement binding for 90/180 days.

During this period, both the borrower and the lender commit themselves not to taking recourse to any other legal action so that the debt restructuring exercise can be undertaken without any intervention.