Corporate Debt Restructuring, The Current Scenario And Evaluation Of Times Ahead
Journal Title: International Journal for Research in Applied Science and Engineering Technology (IJRASET) - Year 2014, Vol 2, Issue 11
Abstract
The concept of restructuring or rescheduling loans has existed in India for several decades. Instructions and guidelines from the RBI on the renegotiation or restructuring of loans and advances date back to the late 1970s, when it was targeted towards people affected by natural calamities. Since then, the instructions have moulded into full-fledged guidelines to address the needs of companies, banks and the economic environment. Restructuring is meant to be a tool for companies facing distress due to certain external circumstances such as a general economic downturn or deterioration in a particular sector. It is not part of the ordinary insolvency law procedure since the whole idea of debt restructuring is to restore the financial health of the company and stabilise it in the long term in a sustainable manner. This article attempts to examine corporate debt restructuring in India: its history, the key aspects surrounding it, the promoters’ role in the restructuring and an assessment of the times ahead. In 2001, the RBI set up the corporate debt restructuring (CDR) mechanism as a voluntary mechanism to facilitate restructuring debts of viable corporate outside the normal insolvency law process. The Indian CDR mechanism is largely based on the London Approach, formulated in the early nineties wherein creditors are encouraged to opt for out-of-court agreements following certain principles to “minimise losses to creditors, avoid unnecessary liquidation of viable debtors and offer continued financial support to viable borrowers.” The approach grew from the idea that in a multi-creditor restructuring, the lenders would probably achieve better returns through collective and coordinated efforts to rescue a firm in distress, rather than force it into formal insolvency. In 2008, comprehensive guidelines for both institutional restructuring (CDR) as well as non-institutional restructuring (non-CDR) were issued; Master guidelines were issued in 2012. Following the report of the working group, the RBI revised the CDR Guidelines on 30 May 2013, bringing in several new and important changes. The CDR regime is briefly described below.
Authors and Affiliations
Abhinav Sharma, Dr. S. K. Gupta
Keywords
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