Banks to offer large corporate defaulters deep haircuts to revive their projects, especially in power, steel sectors
India Inc could see banks further softening their debt restructuring proposals while making the promoters agree to stripping of non-core assets and pledging more shares, the head of India's largest bank said.
The Reserve Bank of India (RBI) may allow the proposal of banks to give their large corporate defaulters bigger haircuts and a longer term to repay their debt so that some of them, especially in the power and steel sectors, can be revived.
It is likely that the deep restructuring now envisaged will be run through a more relaxed corporate debt restructuring (CDR) mechanism where a larger portion of the debt can be converted into equity and the restructuring can run till 80% of the project is revived and not be bound by a 7-year tenure of the CDR mechanism which bankers say is an inhibiting clause.
Arundhati Bhattacharya, chairman, State Bank of India, told DNA Money in an exclusive interview, "If we see the per capita use of iron or steel, it is very low. That being the case we believe these are all working assets so we will take some haircuts and convert a larger part of the debt into equity. We can take it forward. India is a really resource-starved nation so it is important to see that these assets are workable. Our use of iron and steel is very low compared to the rest of the world."
Bankers say that there a number of constraining factors in the S4A (Scheme for Sustainable Structuring of Stressed Assets) and the SDR (Strategic Debt Restructuring) mechanism, and the CDR, with certain relaxations, forms the perfect platform to resuscitate the stressed assets.
Bhattacharya also said, "If you intend to do a deep restructuring, then it is better to do it under the CDR because it has the proper framework. The reason for no cases being referred to the CDR in the last one year was because it was not possible to convert more than 10% of the debt into equity."
She said the 7-year turnaround time given under CDR is also unrealistic. "We also want the two-member oversight committee (OC) to look at all restructuring packages."
When asked what sacrifice the companies should make, she said they would have to sell off non-core assets and pledge more shares. "I think time has come where companies do not have a choice. They will have to comply or it will give rise to litigation. We will have to drive the promoters and if they are unwilling, there will be litigation. There is no choice but try and drive these solutions," she said.
CDR, she said, should run until 80% of the life of the project is revived. "I would prefer something like a 5/25 scheme rather than have a condition of a revival in a 7-year period," she added.
From its inception to date, 655 stressed loans with Rs 4,74,002 crore of debt have been referred to CDR scheme, of which 98 loans had an outstanding debt of Rs 70,851 crore. There are 168 live cases with a debt of Rs 2,07,060 crore still under various stages of implementation.
CDR was an RBI-mandated restructuring scheme set up to revive sick units in early 2004. Many large companies such as Essar Steel, the fertiliser companies and cement companies like India Cements were once under CDR.
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