Debt restructure in India: learning from experience

To save and revive viable corporate entities and for the benefit of all stakeholders including the lenders, the Reserve Bank of India (RBI) in 2001 put in place the corporate debt restructuring (CDR) mechanism. The mechanism is regulated under comprehensive RBI guidelines based on international practices.

CDR was conceived as a timely and transparent mechanism for restructuring of corporate debts of viable entities that face problems due to certain internal and external factors, and to minimize losses to creditors and other stakeholders. It is a voluntary non-statutory system for companies having a minimum outstanding exposure of ₹100 million (US$1.85 million), based on legally binding debtor-creditor and inter-creditor agreements and the principle that decisions of 75% of creditors (by value) are binding on all creditors.

Three tiers

The CDR mechanism is a three-tier structure comprising: (a) CDR Standing Forum; CDR Empowered Group (EG); and (c) CDR Cell. The mechanism may be triggered by one or more of the creditors having minimum 20% share in either working capital or term finance, or by a borrower company if supported by a bank or other financial institution having a minimum 20% share as above.

Ranjana Roy Gawai is the managing partner and Shailesh Suman is a team leader at RRG & Associates.