FROM CENTRAL BANK OF INDIA S.Ravichandran

Transcription

1 FROM CENTRAL BANK OF INDIA S.Ravichandran

2 ECONOMIC VENTURES AND LENDERS CORPORATE PERSPECTIVE- PROFIT LIQUIDITY- SUSTENANCE AND SUSTAINABLE BANKERS/ LENDERS PERSPECTIVE GOODWILL AND COMMERCIAL ISSUES SUSTAINED FUTURE ECONOMIC BENEFITS LONG TERM LIQUIDITY SOLVENCY OF THE CORPORATE

3 FACTORS IMPAIRING ASSET QUALITY MANAGING RISKS ASSOCIATED IMPAIRMENT IN LONG TERM COMMERCIAL VIABILITY CHANGE IN SCOPE AND SIZE OF A VENTURE MIDWAY THROUGH IMPLEMENTATION TIME AND COST OVERRUN NOT MANAGED TRY TO LEVERAGE FOR MORE DEBT DESPITE BEING AWARE OF THE THRESHOLD OF ECONOMIC LOSS

4 WHAT IS BANKER S PERSPECTIVE ON ASSET QUALITY? BILATERAL COMMERCIAL DECISION BETWEEN BANK AND BORROWER SUSTAINED LONG TERM VIABILITY AND CASH GENERATION EXPECTS BORROWER TO ADEHERE TO THE TERMS AND CONDITONS INCLUDING COD AND REPYAMENT TIMELY OPERATIONAL RESTRUCTURING OF THE VENTURE EXPECTS BORROWER TO INFUSE LONG TERM FUNDS FOR ANY EXPECTED OR UNEXPECTED LOSS.

5 PERSPECTIVE OF BORROWER REQUIRES LEAD TIME TO ENHANCE FUTURE VALUE OF ECONMIC BENEFITS WANTS TO TAKE ADVANTAGE OF MULTIPLE LENDING ARRANGEMENT IN A POSITION TO ESTABLISH VIABILITY MINIMIZE LOSSESS TO CREDITORS AND STAKE HOLDERS REQUIRES ASSISTANCE FROM LENDERS IN AN ORDERLY AND CO ORDINATED MANNER PRESERVING THE BUSINESS ENTITY.

6 ROLE OF THE REGULATOR CAPTIAL ADEQUACY ON AN ON-GOING BASIS REGULTORY AND ECONOMIC CAPITAL BUFFERS TO BE BUILT UP MARKET VALUE OF EQUITY OF THE BANK MONITORING AND CONTROL RISK BASED SUPERVISION PRUDENTIAL GUIDELINES ON ASSET CLASSIFICATION AND PROVISIONING.

7 WHERE TO MEET AND BALANCE THE ISSUES? BORROWERS TEMPROARILY IN DISTRESS CIRCUMSTANCES BEYOND THE CONTROL OF THE BORROWER LEGAL OR OTHER ECONOMIC REASONS WHICH CASUSED DELAYS IN PROJ.IMPLEMENTATION GLOBAL FACTORS EXTERNAL DEVELOPMENTS USE TOOL OF RESTRCUTURING CONSCIOUSLY TO HELP BORROWER TIDE OVER DISTRESS.

8 Restructured Accounts- Definition A restructured account is one where the bank, for economic or legal reasons relating to the borrower's financial difficulty, grants to the borrower concessions that the bank would not otherwise consider.

9 BASIC OBJECTIVE PRESERVE ECONOMIC VALUE OF UNITS NOT EVER GREENING OF PROBLEM ACCOUNTS CAREFUL ASSESSMENT OF THE VIABILITY QUICK DETECTION OF WEAKNESS TIME BOUND IMPLEMENTATION RESTRUCTURED ASSET DERIVES ECONOMIC BENEFITS IN QUICKER TIME

10 SPECIAL REGULATORY TREATMENT FOR ASSET CLASSIFICATION ASSET/ACCOUNT IS FULLY SECURED UNIT BECOMES VIABLE IN 10 YEARS, IF ENGAGED IN INFRASTRUCTURE ACTIVITY 7 YEARS IN CASE OF OTHER UNITS REPAYMENT- DOES NOT EXCEED 15 YEARS IN CASE OF INFRASTRCUTURE AND 10 YEARS IN CASE OF OTHER ADVANCES. ABOVE CEILING IS NOT APPLICABLE TO HOME LOANS.

11 SPECIAL REGULATORY TREATMENT FOR ASSET CLASSIFICATION PROMOTERS SACRIFICE AND ADDL. FUNDS BROUGHT BY THEM SHOULD BE A MINIMUM OF 15% OF THE SACRIFICE THAT IS EROSION IN FAIR VALUE PROMOTERS CONTRIBUTION NEED NOT BE BROUGHT IN BY CASH. CAN BE BY DE RATING OF EQUITY, CONVERSION OF UNSECURED LOAN INTO EQUITY AND INTEREST FREE LOANS PERSONAL GUARANTEE OF THE DIRECTORS RESTRUCTURING IS NOT A REPEATED RESG

12 CORPORATE DEBT RESTRUCTURING WHY THE NEED FOR SUCH A SPECIALISED INSTITUTIONAL MECHANISM. NUMBER OF LENDERS/BANKS INVOLVED MORE DIFFICULTY IN CO ORDINATING THE NEGOTIATION AND MONITORING. DEVISING A SYSTEM FOR A COMMON POOL OF PERCEPTION

13 OBJECTIVES OF CDR To ensure timely & transparent mechanism for restructuring debts of viable corporate entities facing problems, for the benefit of all concerned. To aim at preserving viable corporates that are affected by certain internal and external factors To minimize the losses to creditors and other stakeholders through an orderly and coordinated restructuring programme.

14 Legal Basis CDR is a voluntary system based on Debtor Creditor Agreement (DCA) and Inter Creditor Agreement (ICA). DCA & ICA provide the legal basis to the CDR Mechanism

15 CDR Set Up Standing Forum Core Group Empowered Group CDR Cell

16 Standing Forum Representative body of all CDR member FI s, Banks Self empowered body Comprises Chairman/ CMDs of all member institutions Lays down policies and guidelines Monitors progress of CDR

17 Core Group Carved out of Standing Forum Comprises Chairmen/ CMDs of IDBI, SBI, ICICI Bank, PNB, BOI, BOB, Chairman, IBA & Dy Chairman, IBA (Representing Foreign Banks) Assists Standing Forum in formulating policies Addresses operational difficulties of CDR Empowered Group Lays down guidelines for workouts

18 CDR Empowered Group ED level representatives of IDBI, SBI, ICICI Bank as standing members Senior Executives of FIs, banks with exposure in concerned company Executives attending EG meetings should have general authority from their Boards to take decisions

19 CDR Cell Formats for Flash/Final Report, all CDR and RBI Circulars, Statistical Data etc. Assisting CDR Standing Forum/ Core Group/ Empowered Group Making initial scrutiny of proposals. Especially viability of the case and adherence of RBI guidelines. Placing proposals for consideration of EG

20 ADMISSION CRITERION Loan assets with an aggregate debt outstanding ( inclusive of non fund limits) of Rs 10 crore and above and involving at least two lenders. The case may be referred by a lender with exposure of minimum 20% by value. A corporate can also refer its case with letter of support from a lender or lenders with exposure of 20% by value.

21 ADMISSION CRITERION Reference of any account / case to CDR Cell is asset classification neutral. Asset of any class can be admitted subject to certain specific stipulations. Other stipulations regarding minimum margin from the Promoters, Personal Guarantee of Promoters, Pledge of promoters holding etc have to be observed.

22 Admission Criterion (cont.) Cases of fraud and malfeasance are ineligible. Cases of willful default may be considered if permitted by Core Group depending on case specifics. BIFR cases are eligible subject to approval of Core Group and with certain additional conditions.

23 Decision process Decisions in the CDR system are taken on basis of super majority where 75% of lenders by value and 60% of lenders by number have to agree.

24 Components of Restructured packages Within overall regulatory guidelines package is tailor made to suit the corporate needs. may involve certain concessions in rate of interest, carving out irregular portion by giving Working Capital Term Loan ( WCTL) granting of Funded Interest Term Loan (FITL) conversion of debt to equity or other debt instruments. ( CAPS )

25 Additional Finance Additional Finance, if any, to be provided by CDR lenders or all lenders on pro rata basis. Preferential claim with respect to cash flows in respect of additional exposures. Waterfall Mechanism is embedded in the MRA and TRA Asset classification benefits for additional exposures as per extant regulatory guidelines. Sharing additional finance compulsory only in Category I cases.

26 Timeline Initial scrutiny for Flash Report max 30 days Approval of Flash : Next EG Meeting. Approval of Final Package 60/ 90 days Issue of LOA: After confirmation of minutes Approval by individual lenders : 45 days Package Implementation by all : 120 days

27 Key Financial Benchmarks DSCR :1 Return on Capital Employed 5 year G sec + 2% Gap between IRR and cost of capital at least 1% Loan Life Ratio 1.40 Break-even analysis in line with industry Industry indicators EBIDTA, price realization,etc

28 Monitoring & Follow up CDR Cell ensures regular conduct of meetings of MC and follows up on compliance of various aspects of Restructuring Package approved and also the operational and financial performance of the corporate vis-à-vis the projections. MC is a recommendatory body and decisions are made by CDR EG.

29 Exit from CDR is possible either due to non compliance / non adherence to the package, external/industry level factors affecting the package implementation, improved performance of the corporate, merger with larger entity or for any other reason like OTS Upon Exit, Recompense clause would be triggered in certain cases. The sacrifices made by the CDR lenders would have to be recompensed by the corporate.

30 Suggested Strategies Constant data base update Regular representation at CDR EG / CG Liaison with other nodal officers BCC representation at JLM / Important MC Securing mandate internally well in advance of CDR EG Train staff on nuances of CDR Monitoring CDR a/cs through MMR / ASCROM Special focus on CDR a/cs during audit / inspection.

31 Support required from Lenders Timely submission of Flash Report and Final Restructuring Report (at least 10 days prior to CDR EG meeting) Regular conduct of MC meetings by MI and timely submission of minutes thereof to apprise CDR EG / facilitate decision by CDR EG Adherence to time lines and conditions mentioned in LOA. Sanctions committed in package and Disbursements thereof to be expedited

32 Support required from Lenders Part Mandate ( for e.g. Supporting package but no additional finance ) or change of stand taken at JLM for finalization of package / reference to CDR to be avoided. Deputing of senior executive to attend CDR EG meetings especially when the lender has a case under discussion.

33 CDR- How to use the platform judiciously? Crisis management by operational restructuring by the corporate should reflect the commitment of corporate Existing mechanism is transparent Should not be abused based on slight change / slowing down of the economy or particular sector Thrust by lenders on other credit management area Regulatory forebearance relaxation may not be continously available

34 TRENDS- ONE Particulars-RS.IN CRORE MAR-2009 MAR-2010 MAR-2011 MAR-2012 Gross advances 27,53,365 32,27,287 39,82,954 46,55,271 Growth rate TO % 23.41% 16.88% CAGR 19.13% Restrcutured -standard 75,304 1,36,426 1,37,602 2,18,608 Growth rate 81.17% 0.86% 58.48% GAGR RESTRCURED ADV. TO GROSS ADVANCES. 2.73% 4.23% 3.45% 4.68%

35 TRENDS- TWO PARTICUL PERCENT GR.ADV RES.ADV GR.ADV RES.ADV GR.ADV RES.ADV. ALL BANKS CAGR (42.54) PUBLIC SECTOR CAGR (47.86) PRIVA. SEC CAGR ( 8.12) FOREIGN.BK CAGR (-25.48)

36 THE WAY FORWARD EXISTING TRENDS- SIGNIFICANCE FROM PUBLIC POLICY STANDPOINT, BROADER ECONOMIC AND SOCIAL PERSPECTIVE-RATHER DISQUIETING RESTRCUTURING TO BE CONSIDERED ONLY UNDER SPECIFIC CONDITIONS CORPORATE WILLING TO SHARE THE BURDEN BELT TIGHTENING INITIATIVES.

37 THE WAY FORWARD PROJECT APPRAISAL STANDARDS ARE SIGNIFICANTLY ENHANCED. PROFESSIONALS SHOULD PLAY IMPORTANT ROLE IN ENHANCING VIABILITY LOOK FORWARD TO WORK WITHOUT ECONOMIC SACRIFICE WHICH IS AN ISSUE FOR THE BANKS CAPITAL ADEQUACY AVOID DEBT FUNDING OF PROMOTERS FURTHER EQUITY INFUSION.

38 THE WAY FORWARD OVER LEVERAGING THE PROJECT IS AVOIDED PROVISION FOR RE COMPENSATION ACCELERATE REPAYMENT NURTURING OF VIABLE ACCOUNTS IN THE LONG TERM INTEREST OF LENDER AND BORROWER REORIENTATION OF THE APPROACH OF THE LENDER TO SHOW MORE COMPASSION TO SMALL CUSTOMERS UNDER MSME

39 THE WAY FORWARD NEED FOR STRCUTURED MECHANISM FOR SME, RETAIL, AGRICULTURAL LOANS STRUCTURE WILL NEED TO BE BUILT IN AT VARIOUS LEVELS AT THE STATE, DISTRICT REGION AND BANK LEVELS. FUNCTIONARIES AT DIFFERENT LEVELS BEING EMPOWERED TO ASSESS THE VIABILITY ISSUES UNDER THE PRUDENTIAL GUIDELINES IN RESTRCUTURING EXPECTS TO PERCOLATE THE BENEFITS TO SMALLER ACCOUNTS.

40 CONCLUSION STRCUTURE THE PROJECT FOR AN ECONOMIC VALUE BUT NOT WITH AN OPTION TO RESTRCUTURE IN FUTURE