Genesis of CDR Mechanism in India
There are occasions when corporates find themselves in
financial difficulties because of factors beyond their control
and also due to certain internal reasons. For the revival of
such corporates as well as for the safety of the money lent by
the banks and financial institutions, timely support through
restructuring of genuine cases is called for. However, delay in
agreement amongst different lending institutions often comes in
the way of such endeavors. Based on the experience in countries
like the UK, Thailand, Korea, Malaysia, etc. of putting in place
an institutional mechanism for restructuring of corporate debt
and need for a similar mechanism in India, a Corporate Debt
Restructuring System was evolved and detailed guidelines were
issued by Reserve bank of India on August 23, 2001 for
implementation by financial institutions and banks.
The Corporate Debt Restructuring (CDR) Mechanism is a
voluntary non-statutory system based on Debtor-Creditor
Agreement (DCA) and Inter-Creditor Agreement (ICA) and the
principle of approvals by super-majority of 75% creditors (by
value) which makes it binding on the remaining 25% to fall in
line with the majority decision. The CDR Mechanism covers only
multiple banking accounts, syndication/consortium accounts,
where all banks and institutions together have an outstanding
aggregate exposure of Rs.100 million and above. It covers all
categories of assets in the books of member-creditors classified
in terms of RBI's prudential asset classification standards.
Even cases filed in Debt Recovery Tribunals/Bureau of
Industrial and Financial Reconstruction/and other suit-filed
cases are eligible for restructuring under CDR. The cases of
restructuring of standard and sub-standard class of assets are
covered in Category-I, while cases of doubtful assets are
covered under Category-II.
Reference to CDR Mechanism may be triggered by:
- Any or
more of the creditors having minimum 20% share in either working
capital or term finance, or
- By the concerned corporate, if
supported by a bank/FI having minimum 20% share as above.
It may be emphasized here that, in no case, the requests of any corporate indulging in fraud or misfeasance, even in a single bank, can be considered for restructuring under CDR System. However, Core Group, after reviewing the reasons for classification of the borrower as wilful defaulter, may consider admission of exceptional cases for restructuring after satisfying itself that the borrower would be in a position to rectify the wilful default provided he is granted an opportunity under CDR mechanism.
Structure of CDR System: The edifice of the CDR
Mechanism in India stands on the strength of a three-tier