Debt bailout: Packages of more than 40 cos worth Rs27K cr fail in FY15

Only 5 firms with debts of Rs1,399 crore managed to exit corporate debt restructuring successfully.

Written by George Mathew | Mumbai | Published:May 22, 2015 2:34 am
business news This has come at a time when the CDR Cell of banks has approved the recast of Rs 39,230 crore debt of 30 companies during the 12 months ended March 2015.

Plans OF commercial banks to restructure their stressed assets and keep this debt out of the bad loan books seem to be failing following a sharp rise in package failures.

Adding to the miseries of banks, corporate debt restructuring (CDR) packages of 44 companies with a debt of Rs 27,015 crore have failed during the fiscal ended March 2015. On the other hand, only five companies with debt of Rs 1,399 crore managed to exit the CDR successfully, figures released by the CDR Cell of banks have revealed.

This has come at a time when the CDR Cell of banks has approved the recast of Rs 39,230 crore debt of 30 companies during the 12 months ended March 2015, indicating 68 per cent of the fresh approvals failed during the year though technically some of the failed packages were from the earlier years. Outstanding CDR failures almost doubled to Rs 56,995 crore from Rs 29,980 crore in March 2014. The CDR package failures in the previous years were much lower at Rs 3,782 crore in 2013-14, Rs 10,137 crore in 2012-13 and Rs 17,066 crore in 2011-12. Senior bankers have already indicated that more companies will report CDR failures in the current year if the economy doesn’t pick up and demand rises in the system.

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“These companies had missed their projections. We have noticed that failure rates had gone up during the last year. This is partly because these cases were restructured during 2011-12 and 2012-13. They were based on some projections that the economy will do well and demand will rise etc. In some cases it was not possible to comply with or achieve that,” said a senior banker involved in debt restructuring.

When a CDR package fails, banks will have to report such cases as non-performing assets (NPAs) and go for a second package or take legal action for recovery of the loan. However, recovery through the legal route is a long-drawn process and banks resort to this method only as the last measure.

According to the CDR Cell of banks, it has rejected restructuring proposals of 14 firms with a debt of Rs 13,458 crore during the fiscal ended March 2015. These proposals were rejected as they found fund diversion, fraud and wilful defaults. Such accounts will now come under the Reserve Bank’s proposed Red Flagged Account (RFA) system and no restructuring or grant of additional facilities will be made in the case of RFA or fraud accounts. There will be a forensic audit on such accounts.

The CDR Cell says debt worth of Rs 2,86,405 crore of 285 companies is undergoing debt restructuring. Out of this, banks have implemented debt recast of 267 companies involving Rs 2,58,039 crore. Bankers are not optimistic about the success of all these packages and the ongoing fiscal is likely to witness more CDR failures as the economy has not picked up on the expected lines. Nearly one-fourth of the live CDRs are in dire straits and bound to fail. The outstanding rejected proposals (Rs 70,998 crore) and CDR failures (Rs 56,995 crore) now total Rs 1,27,993 crore. It will be a Herculean task for banks to recover this amount from the borrowers.

The RBI rules stipulate that after April 2015, banks will have to treat all restructured standard advances as NPAs and make provisions of 15 per cent —on par with substandard asset classification norms of the RBI. Companies are now using the Joint Lender Forum mechanism and the 5/25 scheme to restructure their accounts and get concessions. According to the RBI, gross NPAs of public sector banks were at 5.17 per cent of advances for the period ended March 2015 and their total stressed assets (NPAs and restructured assets) were 13.2 per cent, which is 230 bps more than industry average.

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