 |
| Back Drop to the Programme |
A brief report
A seminar was organized by CDR Cell along with Indian Banks' Association for the benefit of Chief Executives and Directors of Banks and Financial Institutions at Taj President on February 28, 2004. The purpose of the Seminar was to increase the awareness of CDR and to explain the modalities of CDR mechanism with special emphasis on timely implementation of the approved packages. Shri V. Leeladhar, Chairman of Indian Banks' Association, who presided over the workshop mentioned that although upto February 28, 2004, the CDR system had considered 108 proposals involving aggregate debt of Rs 64,600 crore and approved in 72 cases with total debt of Rs 56,794 crore from the financial system, the NPAs restructured formed only 10% of the total NPAs of the banking system. He lamented that the progress of implementation was very slow and that there was an urgent need on the part of the senior management of the banks and financial institutions to gear up their internal systems to ensure that the implementation of approved packages is completed within the stipulated time.
 |
 |
| Inaugural address by Shri M. Damodaran, CMD, IDBI and UTI Asset Management Co. Pvt. Ltd |
Shri M. Damodaran, CMD, IDBI and UTI Asset Management Company P. Ltd., in his inaugural address stated that in the given circumstances, CDR mechanism had in a short period of 2 years proved to be the most effective method among various tools available in dealing with in dealing with non-performing assets and stressed assets in the books of the lending community. However, he also cautioned about undue advantage being taken by some promoters thereby spreading the misgivings that every project could get concessions like substantial reduction in interest rate, reschedulement for long tenures irrespective of needs and without adequate sacrifice from the promoter. He suggested that the participants in the system should take adequate care to "take away the ill-founded feel-good factor, on the part of some promoters that anything could be got done at CDR". Referring to the serious concerns expressed by Shri Leeladhar on the delays in implementing the package, Shri Damodaran exhorted the participants to take full advantage of the mechanism, which had the complete support of the regulator. Since the primary aim of the seminar was to address the issue of delays, the urged the participants to deliberate on the matter and put in place suitable mechanisms for ensuring quicker implementation of approved packages.
 |
Shri J. N Godbole, Executive Director, IDBI explained the CDR mechanism and highlighted various special aspects. He mentioned that CDR was nothing but super majority of the lenders. Reference to the CDR could be made by a lender with minimum 20% exposure either in working capital or term loan. Although technically reference could be made even by the borrower, it requires support of a lender in 72 cases with at least 20% exposure. CDR Empowered Group consists of senior officers of the rank of ED, CGM, etc., who are authorized by their respective boards. |
| Shri J. N. Godbole, ED, IDBI addressing the audience. |
|
The process of CDR involves a two-stage approach. Depending on cash flow, proposals can have different options (different buckets) i.e., OTS, payment in sho and longer repayment.rt period Approval is based on financial criteria fixed by the Core Group and comparison with industry averages. Decision/voting power is based on pro-rata to the exposure. The scheme provided for exit options. However, the responsibility for arranging a new financier is with the lender and nt with the borrower. Excepting in the standard and sub-standard cases, additional assistance is optional for lenders. Depending on the category of corporates/promoters, stringent conditions are stipulated which include pledge of shares, de-rating of equity, conversion of overdue/sacrifices into equity instead of waiver, control over more than 51% of voting rights, concurrent auditor, lenders' engineer, personal guarantee, escrow/TRA mechanism, etc. There is a provision for appeal to the Core Group by minority or dissenting lenders. He explained that not all cass referred are cleared. There had been 17 rejections and in a couple of cases withdrawal of even approved packages was being considered.
The main emphasis of CDR is that it tries to improve communication between lenders and the borrower, between different class of lenders, i.e., long term lenders and the short term lenders and individual lenders from the same for class like consortium leader who has access to sale proceedings and other lenders. CDR's special emphasis was on time bound action plan of 90 days for approval of case by CDR and 60 days for implementation by individual lenders. The progress of a restructured case is monitored intensively by Monitoring Committee and Empowered Group. Out of three meetings of CDR Empowered Group in a month, one meeting is solely for reviewing the progress of approved cases. In case the promoter was not co-operative, the decision on foreclosure or transferring the case to ARC could also be taken by CDR Empowered Group, where all lenders are available at one place. ARCIL and ACE are members of CDR.
Thus the emphasis was to avoid closure of units due to non-action as sale through legal process not only would take very long time (as high as 10 years or even more), but also the actual recovery in most of the cases has been less than even one-third of the original amount. The irony is that lenders are required to incur expenditure on security and insurance, besides wasting executive/management time.
 |
Shri Siby Antony, Chief General Manager and In-charge of CDR Cell explained in detail the structure of the CDR and process flow chart for the cases under the CDR system to the participants. |
| Shri Sibi Anthony, CGM, IDBI, making a point. |
|
| The workshop also included a presentation by Shri S. Khasnobis, President and Chief Operating Officer, ARCIL on dovetailing of CDR framework with securitisation of assets under Asset Reconstruction Companies. |
 |
| Shri Khasnobis, President and COO, ARCIL, addressing the participants |
A crosssection of the audience. |
