<p>Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty on Saturday said that domestic corporate debt restructuring is not being conducted in an objective manner with the process going in favour of public sector banks and large corporate borrowers.<br /><br /></p>.<p>Chakrabarty, who handles banking supervision at RBI, pointed out at a conference on corporate debt restructuring in New Delhi that the central bank is looking into suggestions proposed by a panel in July to examine how companies restructure their debt with lenders. <br /><br />The panel had recommended higher loan-loss provisions by banks and greater "sacrifice" by founders or controlling shareholders of troubled companies, among other measures, he said.<br /><br />The rise of bad debt is becoming problematic, with corporate debt restructuring (CDR) surging 156 per cent to a record high during the financial year ended March thanks to slowing economic growth hampering the ability of borrowers to service debt. <br /><br />Following general weakness in the economy, the massive spurt in restructured assets since the middle of the past fiscal has resulted in CDR assets touching nearly Rs 2 lakh crore, Chakrabarty said.<br /><br />"Restructuring has not been done in an objective manner. It is heavily biased in favour of public sector banks, towards more privileged borrowers vis-a-vis small borrowers," Chakrabarty said. Chakrabarty expressed concern that banks would push companies into restructuring debt in order to avoid defaults that would show up as non-performing assets (NPAs) on their books.<br /><br />“Why should only public sector banks come before the CDR cell?” he asked remarking that this is because the process is not followed in an objective manner.<br /><br />Banks have been criticised in the past for apparently being too eager while agreeing to recast corporate debt without prudent checks, or providing additional loans to stressed borrowers to enable them to repay outstanding loans. "It appears that the effort has been to avoid accounting classified as NPAs," Chakrabarty noted.<br /><br />Q1 of fiscal 2013 alone saw nearly Rs 35,000 crore being added to the CDR book, mainly led by state-run lenders.<br /><br />“Project appraisal has not been proper...when the commercial operations will start or what will be the cost-flow analysis,” Chakrabarty said, adding that promoters should bring in equity into the company instead of financing it out of total debt.<br /><br />He also pointed out that the CDR process should not take too long. “The entire process should be completed in 90 days. It should not linger for long periods,” he added.<br /><br />The RBI Deputy Governor’s comments assume significance coming a day after the country's premier public sector lender, State Bank of India (SBI), revealed at the announcement of its first quarter results that the bad loans on its books have nearly doubled in the April-June period.</p>
<p>Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty on Saturday said that domestic corporate debt restructuring is not being conducted in an objective manner with the process going in favour of public sector banks and large corporate borrowers.<br /><br /></p>.<p>Chakrabarty, who handles banking supervision at RBI, pointed out at a conference on corporate debt restructuring in New Delhi that the central bank is looking into suggestions proposed by a panel in July to examine how companies restructure their debt with lenders. <br /><br />The panel had recommended higher loan-loss provisions by banks and greater "sacrifice" by founders or controlling shareholders of troubled companies, among other measures, he said.<br /><br />The rise of bad debt is becoming problematic, with corporate debt restructuring (CDR) surging 156 per cent to a record high during the financial year ended March thanks to slowing economic growth hampering the ability of borrowers to service debt. <br /><br />Following general weakness in the economy, the massive spurt in restructured assets since the middle of the past fiscal has resulted in CDR assets touching nearly Rs 2 lakh crore, Chakrabarty said.<br /><br />"Restructuring has not been done in an objective manner. It is heavily biased in favour of public sector banks, towards more privileged borrowers vis-a-vis small borrowers," Chakrabarty said. Chakrabarty expressed concern that banks would push companies into restructuring debt in order to avoid defaults that would show up as non-performing assets (NPAs) on their books.<br /><br />“Why should only public sector banks come before the CDR cell?” he asked remarking that this is because the process is not followed in an objective manner.<br /><br />Banks have been criticised in the past for apparently being too eager while agreeing to recast corporate debt without prudent checks, or providing additional loans to stressed borrowers to enable them to repay outstanding loans. "It appears that the effort has been to avoid accounting classified as NPAs," Chakrabarty noted.<br /><br />Q1 of fiscal 2013 alone saw nearly Rs 35,000 crore being added to the CDR book, mainly led by state-run lenders.<br /><br />“Project appraisal has not been proper...when the commercial operations will start or what will be the cost-flow analysis,” Chakrabarty said, adding that promoters should bring in equity into the company instead of financing it out of total debt.<br /><br />He also pointed out that the CDR process should not take too long. “The entire process should be completed in 90 days. It should not linger for long periods,” he added.<br /><br />The RBI Deputy Governor’s comments assume significance coming a day after the country's premier public sector lender, State Bank of India (SBI), revealed at the announcement of its first quarter results that the bad loans on its books have nearly doubled in the April-June period.</p>