Amid rising cases of corporate debt restructuring (CDR), bankers on Monday discussed proposed changes to the debt restructuring mechanism, advocating tighter norms in order to minimise losses.
The proposals ranged from asking founders to issue personal guarantees and pledging entire holdings to requiring stressed companies to give creditors seats on their boards.
CDR is a Reserve Bank of India (RBI) approved forum of bankers that works with companies and lenders to ease loan terms.
Lenders are also likely to insist on higher promoter contribution to 20-25% from the current 15% as well as ask them to pledge shares and representation on the companies’ board in case they find the management to be inadequate.
Indian banks sought to restructure Rs 64,530 crore ($12 billion) in corporate loans in 2011-12, up 156% from a year ago. Banks filed 84 CDR cases during the year, compared with 49 a year earlier as companies struggled with high repayments due to rising interest rates.
Bankers said that more suggestions are invited from banks on the revamp of the CDR process, which will be forwarded to the Reserve Bank of India and the finance ministry, which will decide on whether to revise the existing guidelines for the debt recast process.