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Corporate Debt Restructuring not an effective tool
Sep 16, 2016

The Corporate Debt Restructuring (CDR) mechanism was introduced way back in 2001 to deal with the menace of bad loans in the banking system. Under the CDR scheme, banks waive off the interest component or restructure interest rate downwards to aid defaulting corporate borrowers in loan repayment. But the scheme has not been very successful so far. This is reflected in the growing failure rate essentially measured in terms of the number of failed CDR cases as a percentage share of the total approved cases.

Of the overall 530 cases approved since inception, 228 cases have already failed at the end of June 2016. This translates into a failure rate of 43% that has steadily risen from 24% around three years ago. One of the key reason why CDR has remained ineffective is the short tenure of restructuring that fails to match up with the longer development life cycle of infrastructure projects.

Even banks have not restructured fresh loans since 31st March 2015 as the revised RBI provisions require them to provide for restructured loans at par with non-performing loans. Moreover, with the introduction of better schemes such as Strategic Debt Restructuring and Sustainable Structuring of Stressed Assets, CDR scheme is bound to get a further beating. However, it remains to be seen whether the improved restructuring measures can enable banks tide the stressed loan crisis that presently stands at 12% of the loan book.

Data Source: Live Mint, CDR Cell Website

This Chart Of The Day was published in The 5 Minute WrapUp - Why is the 'World's Greatest Investor' Obsessed Only with Stocks?

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