grp 13- banking

8/8/2019 Grp 13- Banking

1/15

Section ABC1

Group No. 13

Apoorv Gupta - 2009012

Chandama Dutta - 2009121

Mayank Jain - 2009128

Nilanjan Chakravarty - 2009134

Puneet Grover - 2009137


2/15

The Corporate Debt Restructuring (CDR)Mechanism is a voluntary non-statutory systembased on Debtor-Creditor Agreement (DCA) and

Inter-Creditor Agreement (ICA) and the principleof approvals by super-majority of 75% creditors(by value) which makes it binding on theremaining 25% to fall in line with the majoritydecision.

CDR Mechanism covers only multiple bankingaccounts, syndication/consortium accounts,where all banks and institutions together havean outstanding aggregate exposure of Rs.200million and above.


3/15

Reference to CDR Mechanism may be triggered

by:

Any or more of the creditors having minimum20% share in either working capital or term

finance, or

By the concerned corporate, if supported by

a bank/FI having minimum 20% share asabove.


4/15

CDR Standing Forum

CDR Empowered Group

CDR Cell


5/15

The highest level of CDR constituted by a

representative general body of financial

institutions participating under the CDR

mechanism.

Lays down policies and guidelines to be

followed by the CDR Empowered Group and

CDR Cell for debt restructuring and ensures

their smooth functioning.


6/15

Assists the Standing Forum in convening

meetings and taking policy related decisions,

on behalf of the Forum.

Lays down policies and guidelines which areto be followed by the CDR Empowered Group

and CDR Cell for debt restructuring.

Also responsible for deciding on the

modalities for enforcement of the timeframe.


7/15

The Boards of all institutions/banks authorizetheir Chief Executive Officers and/orExecutive Directors to decide on the

restructuring package in respect to casesreferred to the CDR system, with therequisite requirements, to meet the controlneeds.

Investigates individual cases of corporatedebt restructuring while examining therehabilitation potential of the company andaccordingly approve the restructuring thepackage within a time period of 90 days.


8/15

The third tier of the CDR mechanism.

Assists the upper two entities in all their

functions. Scrutinizes the initial applications received

from borrowers/lenders.


9/15

Allows businesses to gain control of its finances.

Can improve the credit score of a business

entity over a period of time, if restructuring isperformed properly.

With the intervention of third party financial

institutions, everything flows more smoothly

and the business owner is relieved of much ofthe stress of debt management.


10/15

The first reaction of the creditors is to hold

all applications for new credit to ensure that

the borrower pays the existing obligations

regularly after the whole restructuring

process is enforced.

If the corporate house chooses to restructure

its debts and the information leaks out to

customers, they may assume that the

corporate houses are having problems with

their finances or that they are close to

bankruptcy.


11/15

Banks/FIs suffer some losses, as the

discounting for loan takeouts after

finalisation of CDR package, is likely to be

high, especially as the assets are actuallyNon-Performing Assets(NPA).

Longer settlement period of CDR or delayed

payments affects the profitability of

banks/FIs. Sometimes diversion of short-term funds for

long-term uses reduces the Drawing Power of

the company.


12/15

Policy coordination

Analysis of data to assess the dimensions of the debt

problem Consideration of reform of the legal and

institutional framework for enforcement of credit,particularly the corporate insolvency law

Government support to facilitate out-of-courtrestructurings

Potential innovations to facilitate voluntarystandstills

Careful assessment of the rationale for government


13/15

Weaknesses in the banking sector could prolong

the restructuring of the corporate debt.

The incentives of the banks alone are not

sufficient to secure a speedy and efficient

restructuring of corporate debt.

Coordination failures and externalities may

inhibit progress.


14/15

Government support for setting up specialized advisory andinvestment banking services to facilitate negotiations betweenbanks and corporations and minimize coordination problems

Offering tax and other financial incentives to banks (includingto AMCs, see below) to expedite out-of-court debtrestructuring

Using supervisory powers to require banks to disclose claims torelevant negotiating parties; lack of transparency couldotherwise delay outcomes of debt negotiations;

Ensuring strict enforcement of existing NPL classification and

other regulatory guidelines to strengthen the banks incentivesto participate in debt restructuring

Defining a clear and concise timetable for various stages of thedebt workout process. To achieve maximum participation fromboth sides and minimum disruption along the way, supervisorypenalties for non-compliance could be imposed.


15/15

grp 13- banking

Documents