A Reserve Bank of India working group has suggested a higher amount of promoters’ sacrifice in cases of corporate debt restructuring and has also mooted for an increase in banks’ provisioning requirement for recast standard assets.
The report comes at a time when the country is witnessing a huge rise in corporate debt restructuring ( CDR ) cases due to the deterioration in macro-economic situation.
The panel has also suggested that “conversion of debt into preference shares should be done only as a last resort”.
“Also, conversion of debt into equity/preference shares should be restricted to a cap (say 10 percent of the restructured debt). Further, conversion of debt into equity should be done only in the case of listed companies,” the panel has suggested.
Of late there have been cases of restructuring where banks converted debt of private companies into equity. A case in point is troubled Kingfisher Airlines.
In April, as part of a debt recast, the consortium of lenders including State Bank of India and ICICI Bank had converted debt worth Rs 750 crore into 23 percent equity in the debt-ridden airline.
The conversion price was Rs 64.48 per share. The stock is at present trading Rs 10.53.
There have been apprehensions that many companies in India are taking an easy route of restructuring debt.
Earlier, a report in the Business Standard said the amount of loans that were referred to the corporate debt restructuring (CDR) cell of banks rose four times to Rs 19,500 crore in April-June from Rs 4,680 crore in the same period a year ago.