Corporate Debt Restructuring in India

Topics: Debt, Finance, Restructuring Pages: 9 (2640 words) Published: April 8, 2013

CORPORATE DEBT RESTRUCTURING: CONCEPT, ASSESSMENT AND EMERGING ISSUES C.S.Balasubramaniam Professor, Babasaheb Gawde Institute of Management Studies, Mumbai Email:

ABSTRACT Corporate Debt Restructuring (CDR) has been used by the companies while facing ugly finances and the bankers willing to consider a flexible mechanism such as CDR, as the banks /financial institutions have to reduce their Non Performing Assets (NPA) .Based on the recommendations of the Working Group on CDR Reserve Bank of India (RBI) has appealed to the corporate to be exercising caution and financial discipline and the bankers to be prudent and vigilant while granting the CDR to the borrowing companies based on their prevailing financial situation. This research paper assumes topical significance now. The research paper is structured as follows: Firstly, it attempts to study the concept of CDR from the borrowing company’s context as well as from the lending bankers view. The Second part would present statistics on NPA and analysis. The Third part would examine the impact of CDR to the banking system and the economy and the emerging issues and perspectives would be posed in the Conclusion.

Keywords: Corporate Debt Restructuring, Non Performing Assets Restructured Standard Advances, Reserve Bank of India, Banking System Corporate Debt Restructuring (CDR) CDR is an effective financial tool to provide a flexible mechanism to the corporate management to get back to the top line growth oriented performance ,cutting overheads / other unnecessary expenses consolidating their operations and streamlining their balance sheets, cash flows and finances . CDR would also include heavy dose of financial discipline to be followed by the internal operations, improve cash positions in the short term as well as the short term along a structured path of recovery. As part of corporate restructuring, it might extend into spinning off new divisions and even diversifying into related /unrelated businesses as the emerging circumstances require. It would also expect the company to take up strategic acquisitions to raise the business sophistication or alter its business mix. Alternatively, it may entail heavy use of leverage and even share repurchase/buy back mechanisms, raise EPS and discourage hostile tender offers. From the Bankers point of view, it should be attempting to help the borrower with a financial arrangement ,who is facing distress temporarily ,to tide over and become financial viable and restoring their finances . CDR is a specialized institutional mechanism for restructuring VOLUME NO.2, ISSUE NO.1 42 ISSN 2277-1166

NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT large exposures involving more than one lender under consortium/multiple banking arrangements. Stijn Claessens of the World Bank has defined ‘restructuring ‘refers to the several related processes -recognizing and allocating financial losses ,restructuring the claims of financial institutions and corporations and restructuring the operations of financial institutions and corporations. Losses, i.e. differences between financial institutions and corporations ‘ market value of assets and nominal value of liabilities can be allocated to shareholders by dilution ,to depositors and external creditors by reduction (of the present value ) of their claims ,to the employees and their suppliers by payment of lower wages and prices ,to the government ,i.e. public at large ,through higher taxes and expenditure cuts or inflation. Financial restructuring for corporations can take many forms: rescheduling (extension of maturities), lower interest rates, debt for equity swaps, debt forgiveness, indexing of interest payments to earnings and so on. The main aims of financial restructuring are separating and treating...
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