The Reserve Bank of India has given minority lenders to a company that is in the midst of corporate debt restructuring an exit option, albeit with some riders, even though lenders with 75 per cent exposure in value terms will have to accept the recast proposal.
The central bank has also allowed all lenders -- both majority and minority -- in the CDR to sell their share of loans to others provided the latter agree to abide by the recast package.
In yet another change to the original CDR norms, the RBI has also allowed restructuring of accounts that fall under the "doubtful" category. Earlier, only standard and sub-standard assets could be restructured.
An asset becomes sub-standard when the borrower has not paid interest for one quarter. It becomes doubtful when the failure in interest payment continues for two years.
Under the original CDR scheme, if 75 per cent of secured creditors by value agreed to a debt restructuring package, this was binding on the remaining secured creditors.
The minority lenders, particularly the foreign and the private sector banks, were affected in these recast cases as their exposure was lower.
The RBI, in order to avoid an easy exit, has provided some disincentive to creditors who wish to exercise the exit option.
These creditors can either arrange for their share of additional financing to be provided by a new or existing creditor or agree to the deferment of the first year's interest due to it after the CDR package becomes effective.
The first year's deferred interest, without compounding, will be payable along with the last installment of the principal due to the creditor, the RBI said.
"Lenders that wish to exit from the package would have the option to sell their existing share to either the existing lenders or fresh lenders, at an appropriate price, which would be decided mutually between the exiting lender and the lender taking over.
"The new lenders shall rank at par with the existing lenders for repayment and servicing of the dues since they have taken over the existing dues to the exiting lender," RBI said.
In addition, the exit option will also be available to all other lenders within the minimum 75 per cent block, provided the purchaser agrees to abide by the restructuring package approved by the "empowered group".
The central bank is also introducing a second category of CDR for cases where the accounts have been classified as 'doubtful' in the books of lenders provided a minimum of 75 per cent (by value) of the lenders satisfy themselves of the viability of the account and consent for such restructuring.
It will not be binding on the creditors to take up additional financing worked out under the debt restructuring package and the decision to lend or not to lend will depend on each creditor bank/FI separately.
