Debt Restructuring in India:

Corporate Debt Restructuring (CDR) is a mechanism to revive doubtful corporate loans in order to
ensure safety of money lend by the banks and financial institutions through timely support by
restructuring the loans. It is a voluntary non-statutory system based on Debtor-Creditor Agreement
(DCA) and Inter-Creditor Agreement (ICA). CDR mechanism was evolved and detailed guidelines were
issued by Reserve bank of India in consent with government and financial institutions on August 23,
2001 for implementation by financial institutions and banks. These guidelines on CDR were
subsequently reviewed and revised on the basis of recommendations of a High Level Group and current
comprehensive guidelines on CDR as well as non-CDR restructuring were issued in August 2008.
The main objectives under this mechanism are as follows:
mechanism for restructuring of corporate debts of viable entities facing problems, for benefit of all
fected by the certain internal and external
factors -ordinated
restructuring program. The restructuring of a companys outstanding obligations, habitually attained by:
ing concessions in payment and waiving part of interest -serviced
uction in equity capital to make more
capital available for expansion
payment of interest on the debentures etc.
Trend Analysis: The thought to introduce CDR was to help sinking corporates if they fall under viable
category. However, in recent years CDR comes under scanner due to extraordinary rise in the number
and volume of advances being restructured under the scheme.

Challenges:
ases and volume of loans for debt restructuring had
grown enormously. The problem arise because, CDR mechanism have not been used very ethically and
judiciously. Hence, to follow CDR in ethical way is still a challenge for Banks and financial institutions.
Constraints of time and skills: further, lenders have to rely on the due-diligence done and certificates
Other
issues: Excessive leveraging by borrowers, coupled with slowdown in the economy which some time
results into restructuring benefit for an unscrupulous borrower with an unviable account.
Road ahead: In 2012, banks were approached for debt restructuring in a record 126 cases and collective
amount of Rs 84,000 crore which shows sign of concern in terms of growing bad debts for banks. To
overcome these issues, Reserve Bank of India (RBI) has sharply raised the provisioning requirements for
restructured loans of banks to 5 per cent from existing 2.75 per cent. The new guidelines say that, for
accounts restructured prior to March 31, banks would have to make provision of 3.75 per cent in the
first phase effective March 31 2014. And in the next phase, it will be 5 per cent with effect from March
31, 2015. Central bank has also asked banks to give information on restructured advances in their
annual balance sheets separately for both stressed and satisfactory performance account which is
expected to create transparency in the system. Further, restructuring is an instrument for helping
troubled segment of the economy to overcome difficulties and make control over indefinite
circumstances. Restructuring was brought for the larger benefit of the economy and the society; it
should be available to all types of lender in a timely and non-discriminate manner. This can be achieved
by developing necessary structures, systems and processes and by following necessary objectives.