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Annex - 4
Organisational Framework for Restructuring of Advances Under
Consortium / Multiple Banking / Syndication Arrangements
A.
Corporate Debt Restructuring (CDR)
Mechanism
Objective
The objective of CDR is to ensure timely and
transparent mechanism for restructuring large corporates availing facilities from
more than one bank, outside the purview of BIFR, DRT and other legal
proceedings.
This mechanism will be available to all borrowers
subject to the following conditions:
a)
The borrowers enjoy credit facilities
from more than one bank.
b)
The total outstanding exposure is Rs.10
crore or above.
CDR system in the country will
have a three tier structure :
·
CDR Standing Forum and its Core Group
·
CDR Empowered Group
·
CDR Cell
CDR
Standing Forum
CDR Standing Forum would be the representative
general body of all banks participating in CDR system. This
will be a self empowered body, which will lay down policies and guidelines, and
monitor the progress of corporate debt restructuring.
The Forum will provide an official platform for both
the creditors and borrowers to amicably and collectively evolve policies and
guidelines for debt restructuring plans.
The CDR Standing Forum shall comprise of CMD, IDBI
Ltd; Chairman, SBI; MD & CEO, ICICI Bank Limited; Chairman, IBA as well as CMDs
of all banks and financial institutions participating as permanent members in
the system. UTI, GIC, LIC may participate in the CDR system. The Forum will
elect its Chairman for a period of one year and the principle of rotation will
be followed in the subsequent years. However, the Forum may decide to have a
Working Chairman as a whole-time officer to guide and carry out the decisions
of the CDR Standing Forum. The RBI would not be a member of the CDR Standing
Forum and Core Group. Its role will be confined to providing broad guidelines.
The CDR Standing Forum shall meet at least once
every six months and would review and monitor the progress of CDR system. The
Forum would also lay down the policies and guidelines to be followed by the CDR
Empowered Group and CDR Cell and ensure their smooth functioning. It can also
review any individual decisions of the CDR Empowered Group and CDR Cell. The
CDR Standing Forum may also formulate guidelines for complicated cases that are
likely to be delayed beyond the prescribed time frame.
A CDR Core Group will be carved out of the CDR
Standing Forum to assist the Standing Forum in convening the meetings and taking
decisions relating to policy. The Core Group will consist of Chief Executives
of IDBI Ltd., SBI, ICICI Bank Ltd, BOB, BOI, PNB, IBA and
Deputy Chairman of IBA representing foreign banks in India.
The CDR Core Group would lay down the policies and
guidelines to be followed by the CDR Empowered Group and CDR Cell for debt restructuring
which shall suitably address the operational difficulties experienced in the
functioning of the CDR Empowered Group. The CDR Core Group shall also prescribe
the PERT chart and decide on the modalities for enforcement of the time frame.
The CDR Core Group shall also lay down guidelines to ensure that
over-optimistic projections are not assumed while dealing with restructuring
proposals.
CDR
Empowered Group
The individual cases of corporate debt restructuring
shall be decided by the CDR Empowered Group, consisting of EDs of IDBI Ltd.,
ICICI Bank Ltd. and SBI as standing members, in addition to EDs of financial
institutions and banks who have an exposure. While the standing members will
facilitate the conduct of the Group's meetings, voting will be in proportion to
the exposure of the creditors. Participating institutions should approve a
panel of senior officers to represent them in the CDR Empowered Group and
ensure deputing only the empanelled officers to attend the meetings. Further,
nominees who attend the meeting pertaining to one account should invariably
attend all the meetings pertaining to that account.
There should be a general authorisation by the respective
Boards of the participating banks in favour of their representatives, authorizing them to take decisions on behalf of their organization.
The CDR Empowered Group will consider the
preliminary report of all cases of requests of restructuring, submitted to it
by the CDR Cell. After the Empowered Group decides that restructuring is
feasible and viable, the detailed restructuring package will be worked out by
the CDR Cell in conjunction with the Lead Institution. However, if the lead institution
faces difficulties, the participating banks should decide upon the alternate
bank at the first meeting of the Empowered Group when the preliminary report of
the CDR Cell comes up for consideration.
The CDR Empowered Group would be mandated to approve
the restructuring package within 90 days, or at best within 180 days of
reference to the Empowered Group. The CDR Empowered Group shall decide on the
acceptable benchmark levels on the following illustrative parameters, which may
be applied on a case-by-case basis:
*
Return on Capital Employed (ROCE),
*
Debt Service Coverage Ratio (DSCR),
*
Gap between the Internal Rate of Return
(IRR) and the Cost of Fund (CoF),
*
Extent of sacrifice.
The Board of each bank should authorise its CEO and
ED to decide on the restructuring package, with the requisite requirements to
meet the control needs. CDR Empowered Group will meet on two or three occasions
in respect of each borrowal account. This will provide an opportunity to the
members to seek authorisations, where the critical parameters are beyond the
authority delegated to them.
The decisions of the CDR
Empowered Group shall be final. If restructuring of debt is found to be viable
and feasible and approved by the Empowered Group, the company would be put on
the restructuring mode. If restructuring is not found viable, the creditors
would then be free to take necessary steps for immediate recovery of dues or
liquidation or winding up of the company, collectively or individually.
CDR Cell
The CDR Standing Forum and the CDR Empowered Group
will be assisted by a CDR Cell in their functions. The CDR Cell will make the
initial scrutiny of the proposals and put up the matter before the CDR
Empowered Group, within one month to decide whether rehabilitation is prima
facie feasible. If found feasible, the CDR Cell will prepare detailed
Rehabilitation Plan with the help of creditors and, if necessary, outside experts.
If not found feasible, the creditors may start recovery action.
All references for corporate debt restructuring by
borrowers will be made to the CDR Cell. It shall be the responsibility of the
lead institution or major stakeholder to work out a preliminary plan in
consultation with other stakeholders and submit to the CDR Cell within one
month. The CDR Cell will prepare the restructuring plan in terms of guidelines
approved by the CDR Standing Forum and place it to them for consideration
within 30 days. The Empowered Group can approve or suggest modifications but
ensure that a final decision is taken within 90 days. However, for sufficient
reasons the period can be extended up to 180 days from the date of reference to
the CDR Cell.
The CDR Standing Forum, the CDR Empowered Group and
CDR Cell is at present housed in IDBI Ltd. However, it may be shifted if
considered necessary by the Standing Forum. The costs shall be shared by all
financial institutions and banks as determined by the Standing Forum.
CDR Cell will have adequate members of staff deputed
from banks and financial institutions. The CDR Cell may also take outside
professional help. The operating cost will be met from contributions
from banks in the Core Group at the rate of Rs.50 lakh each and from other
banks at the rate of Rs.5 lakh each.
Other
features
Eligibility criteria
The CDR mechanism will cover only multiple banking
accounts of corporate borrowers with outstanding exposure of Rs.10 crore and
above.
The Category 1 CDR system will be applicable only to
accounts classified as 'standard' and 'sub-standard'. If the account has been
classified as 'standard'/ 'substandard' in the books of at least 90% of
creditors by value, the same would be treated as standard / substandard, only
for the purpose of judging the account as eligible for CDR, in the books of the
remaining 10% of creditors. Potentially viable cases of NPAs will get priority.
Corporates indulging in frauds will be ineligible
for restructuring. However the Core group may review the cases of wilful
default and satisfy itself that the borrower is in a position to rectify the
wilful default provided he is granted an opportunity under the CDR mechanism.
Such exceptional cases may be admitted for restructuring
with the approval of the Core Group only.
The accounts where recovery suits have been filed,
may be eligible, provided, the initiative is taken by at least 75% of the
creditors (by value) and 60% of creditors (by number).
BIFR cases are not eligible for restructuring under
the CDR system. However, large value BIFR cases may be eligible if recommended
by the Core Group. The lending institutions should seek the approval from BIFR
before implementing the package.
Reference to CDR system
Reference to CDR System could be triggered by (i)
any or more of the creditor who have min 20% share or (ii) by the concerned
corporate, if supported by a bank or financial institution having stake of min
20%.
Banks should review all eligible cases where the
exposure of the financial system is more than Rs.100 crore and decide about
referring the case to CDR system or to proceed under SARFAESI Act or to file a
suit in DRT etc.
Legal Basis
CDR is a voluntary system based on Debtor- Creditor
Agreement (DCA) and Inter-Creditor Agreement (ICA) which shall provide the
legal basis to the CDR mechanism. The debtors shall accede to the DCA, either
at the time of original documentation or at the time of reference to CDR Cell. The ICA signed by the creditors will be
initially valid for 3 years and subject to renewal for further 3 years. The
lenders in foreign currency outside the country are not a part of CDR system.
Such creditors and also creditors like GIC, LIC, UTI, etc., who have not joined
the CDR system, could join CDR mechanism of a particular corporate by signing
ICA, wherever they have exposure.
The ICA would be a legally binding agreement amongst
the creditors. Further, the creditors shall agree that if 75% of creditors by
value and 60% by number, agree to a restructuring package, the same would be
binding on the remaining creditors. It is expected that such remaining creditors
would be willing to participate in the CDR package, including the agreed
additional financing.
A clause may be incorporated in
the loan agreements whereby all creditors, including those which are not
members of the CDR mechanism, agree to be bound by the terms of the
restructuring package, as and when restructuring may become necessary.
One of the most important
elements of DCA would be 'stand still' agreement binding for 90 days, or 180
days on both sides. Under this clause, both the parties shall agree not to take
legal recourse. The clause will be applicable only to civil action and will not
cover criminal action. During the stand-still period, outstanding foreign
exchange derivative products can be crystallised, if the borrower is agrees.
The borrower will undertake that during the stand-still period the documents
will stand extended and that it will not approach any other authority for any
relief. Further, the directors will not resign from the Board of Directors
during the period.
Sharing of Additional finance
Additional finance, if any, is to
be provided by all the creditors, on a pro-rata basis. In case, any creditor
(outside the minimum 75% and 60%) does not wish to commit additional financing,
that creditor will have an option to exit.
The providers of additional
finance, shall have a preferential claim, over the providers of existing
finance, on the recoveries in respect of the additional exposure
Exit Option
A creditor (outside the min 75% and
60%) who does not wish to commit additional finance will have an option to exit.
As a disincentive, such creditors can either (a) arrange for its share of
additional finance (b) agree to the deferment of the first year's interest due
to it after the CDR package becomes effective. The first
year's deferred interest without compounding, will be payable along with the
last instalment of the principal due to the creditor.
The exit option will also be
available to the lenders (within the min 75% and 60%) provided the purchaser
agrees to abide by the restructuring package. The exiting lenders may continue
with their existing level of exposure provided they tie up with the existing
lenders or fresh lenders for taking up their share of additional finance.
The lenders who wish to exit would
have the option to sell their share to the existing lenders or fresh lenders,
at a price which would be decided between the old and new parties. The new
lenders shall rank at par with the existing lenders for repayment and servicing
of the dues.
In order to bring more
flexibility in the exit option, One Time Settlement can also be considered. If
an account is subjected to OTS by a borrower before its reference to the CDR
mechanism, any fulfilled commitments under such OTS may not be reversed under
the package. Rather payment commitments of the borrower arising out of such OTS
may be factored into the restructuring package.
Category
2 CDR System
CDR 2 is applicable on accounts which
been classified as 'doubtful', and if a min of 75% of creditors (by value) and
60% creditors (by number) satisfy themselves of the viability and consent for
such restructuring, subject to the following conditions :
(i)
It will not be binding on the creditors
to take up additional financing and the decision will depend on each bank separately.
It would be up to the promoter to firm up additional financing with new or
existing creditors individually.
(ii)
All other norms under the CDR mechanism
such as the standstill clause, asset classification status etc., will continue
to be applicable to this category also.
No individual case should be
referred to RBI. CDR Core Group may take a final decision whether a particular
case falls under the CDR guidelines or it does not.
All the other features of the CDR
1 system will be applicable under the Second Category too.
Incorporation
of 'right to recompense' clause
All CDR approved packages must incorporate
creditors' right to accelerate repayment and borrowers' right to pre-pay. All
restructuring packages must incorporate ‘Right to recompense’ clause and it
should be based on certain performance criteria of the borrower. In any case,
minimum 75% of the recompense amount should be recovered by the lenders and where
some facility under restructuring has been extended below base rate, 100% of
the recompense amount should be recovered.
B
SME Debt Restructuring Mechanism
There exists a much simpler mechanism for
restructuring availed by Small and Medium Enterprises (SMEs). The operational
rules of the mechanism have been left to be formulated by the banks concerned.
This mechanism will be applicable to all the borrowers with outstanding up to
Rs.10 crore under multiple banking arrangement. Major elements of this
arrangements are as under :
(i)
Banks may formulate, a debt
restructuring scheme for SMEs within the prudential norms. Banks may frame
different sets of policies for different sectors within the SME if they so
desire.
(ii)
While framing the scheme, banks may
ensure that the scheme is simple to comprehend and will, include parameters
indicated in these guidelines.
(iii)
The bank with the maximum outstanding
may work out the restructuring package, along with the bank having the second
largest share.
(iv)
Banks should work out the restructuring
package and implement the same within a maximum period of 90 days from date of
receipt of requests.
(v)
The SME Debt Restructuring Mechanism
will be available to all borrowers engaged in any type of activity.
(vi)
Banks may review the progress in
rehabilitation and restructuring of SMEs accounts on a quarterly basis and keep
the Board informed.
Based on the
Master Circular of 1/7/15.
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