Concerned over the rising cases of loan defaults, Indian banks have set strict norms for offering loan restructuring to promoters who have run businesses aground. After Reserve Bank of India governor Raghuram Rajan's stern message against defaulters and failed managements, lenders have started taking more careful steps while restructuring loans and have decided to go ahead with restructuring on a loan only after ascertaining that the project is viable and the promoter has not siphoned off funds, or diverted funds to any other project.
Further, banks are now seeking upfront commitment from borrowers in form of guarantee. At Corporate Debt Restructuring (CDR), banks have made it mandatory that promoters' contribution at 25% of bank’s loan should be made upfront and if the borrower fails to repay loans, the CDR package is withdrawn and lenders can take legal action for recovery of loans.
Recently, the RBI has noted that promoters don’t have the right to use the banking system to recapitalize their failed ventures and suggested the banks to take careful steps while restructuring loans, a method used by banks with outstanding debt obligations to alter the terms of the debt agreements to avoid default on existing debt. The stress on the asset quality is a reflection of slowdown in the economy of the country and over the past two years, non-performing Assets (NPAs) of banks have been increasing on account of prevailing economic downturn. In the April- June quarter, 2013, gross NPAs in the banking system grew by 12.02 percent to Rs. 2.06 trillion and formed 3.85 percent of the industry’s advances.
Further, banks are now seeking upfront commitment from borrowers in form of guarantee. At Corporate Debt Restructuring (CDR), banks have made it mandatory that promoters' contribution at 25% of bank’s loan should be made upfront and if the borrower fails to repay loans, the CDR package is withdrawn and lenders can take legal action for recovery of loans.
Recently, the RBI has noted that promoters don’t have the right to use the banking system to recapitalize their failed ventures and suggested the banks to take careful steps while restructuring loans, a method used by banks with outstanding debt obligations to alter the terms of the debt agreements to avoid default on existing debt. The stress on the asset quality is a reflection of slowdown in the economy of the country and over the past two years, non-performing Assets (NPAs) of banks have been increasing on account of prevailing economic downturn. In the April- June quarter, 2013, gross NPAs in the banking system grew by 12.02 percent to Rs. 2.06 trillion and formed 3.85 percent of the industry’s advances.
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