CDR Final Project

Project Report
on
Corporate Debt Restructuring
Submitted By:
Haresh Patel, Roll No.2234
ABSTRACT

Corporate Debt Restructuring (CDR) has been used by the companies while facing ugly finances and the
bankers willing to consider a flexible mechanism such as CDR, as the banks /financial institutions have
to reduce their Non Performing Assets (NPA) .Based on the recommendations of the Working Group on
CDR Reserve Bank of India (RBI) has appealed to the corporate to be exercising caution and financial
discipline and the bankers to be prudent and vigilant while granting the CDR to the borrowing
companies based on their prevailing financial situation. The research paper is structured as follows:
Firstly, it attempts to study the concept of CDR. The Second part attempts to understand the mechnisum
of CDR in India. The Third would present statistics on CDR cases. NPA and analysis. The Third part
would examine the impact of CDR to the banking system and the economy and the emerging issues and
perspectives would be posed in the Conclusion.
Acknowledgement
It is my privilege to extend my heartiest thanks to all those who have directly or indirectly
contributed significantly to complete this project with utmost accurate, validity and authenticity.
We would like to express my earnest gratitude to Prof. Vinay Dutta, Sr. Professor & Area
Chairperson, FORE School of Management, for the stupendous guidance and support that he
provided to us during the execution of the project.
We would also like to thank Mr. Narendar Thakran for giving us this golden opportunity to work
on CDR in Punjab National Bank. His role in providing a vivid insight into the topic goes
beyond the realms of any text book.
Thanking all

Table of Contents
Chapter 1 Introduction 5
Characteristics of CDR 6
Objective
Chapter 2 Sources of Data
Chapter 3 Method of Research 6

Chapter 4 Literature Review
Chapter 5 Understanding CDR 10

Recovery Mechanism
10
Debt Recovery Process 10

Normal Recovery Procedure
10
Difficult recovery process
11
Modes of Recovery
12
Importance of CDR
13
Present Status of CDR cases
14
Prudential and Accounting Issues
15
Chapter 6 CDR Mechanism in India
16
Objective
16
Structure
16
CDR Standing Forum
16
CDR Empowered Group
17
4

Eligibility Criterion
18
Chapter 7 Financial Viability Parameters20

Return on Capital Employed
20
Debt Service Coverage Ratio
20
Gap between Internal Rate of Return and Cost of Capital 21

Extent of Sacrifice
21
Other Financial Parameters

Break-Even Analysis
22
Gross Profit Margin
22
22
Loan Life Ratio 23

Chapter 8 Live Case Study
Major Problem Areas
24
24
Adverse Effect of reviewing accounting policy 24

Failure to raise funds through Right Issue
25
Effect of failure of companys effort for a slump sale of COMAPNY Xs business25

Global Recession and its effect on companys business
Future Outlook for the Company
Marketing Viability
26
26
Demand and Supply Analysis
26
Future Market Demand and Supply

Term Lenders CDR
26
27
29
Working Capital Lenders (CDR)29

5

Non CDR Lenders
30
Restructuring Proposal 30
Restructurization of term loans 30
Restructuring of Working Capital
OCCPRS
31
32
WCTL 33
Funding of interest accruing from cut off date to 30.09.2011 by converting the same into Funded Interest
Term Loans (FITL)
33
Total FITL Calculation 34

Allocation of Drawing Power (DP)
34
Additional WC funding 35
Promoters Contribution 36
Financial Viability
37
Ratio analysis 38
Safeguards provided in the scheme
39
Chapter 9 : Learnings and Outcomes
41
Chapter 10 References 42
Chapter 11 Annexures 43
Introduction
In spite of their best efforts and intentions, sometimes corporates find themselves in financial
difficulty because of factors beyond their control and also due to certain internal reasons. For the
revival of the corporate as well as for the safety of the money lent by the banks and FIs, timely
support through restructuring in genuine cases is called for. However, delay in agreement
amongst different lending institutions often comes in the way of such endeavors.
Based on the experience in other countries like the U.K., Thailand, Korea, etc. of putting in place
institutional mechanism for restructuring of corporate debt and need for a similar mechanism in
India, a Corporate Debt Restructuring System was evolved in 2001.
Corporate Debt Restructuring (CDR) mechanism is a voluntary non statutory mechanism under
which financial institutions and banks come together to restructure the debt of companies facing
financial difficulties due to internal or external factors, in order to provide timely support to such
companies. The intention behind the mechanism is to revive such companies and also safeguard
the interests of the lending institutions and other stakeholders. The CDR mechanism is available
to companies who enjoy credit facilities from more than one lending institution. The mechanism
allows such institutions, to restructure the debt in a speedy and transparent manner for the benefit
of all.
While it has proved to be fruitful in many cases, still there is a lot of scope for improvement.
Various issues arise such as foreign lenders reluctance to be a part of the CDR process along
with Indian banks, because they feel that the process is more favourable to Indian lenders and
could be misused by certain entities. The analysis shows that many restructured cases turn into
bad assets over a period of time. A thrust area which needs a further look-in is the post
restructuring phase which demands heavy monitoring.
Objective
The objectives of the study are:
To understand the concept of Corporate Debt Restructuring(CDR)

To understand the process involved in CDR.
To gain an insight into the various issues involved while considering an organization for
the CDR.
To understand the various steps taking by the banks and other financial institutions
involved while doing CDR of an organization.

Pros and Cons of the CDR.
Research methodology
The study focuses on extensive study of Secondary data collected from various books, National
& international Journals, government reports, publications from various websites which focused
on various aspects of Corporate Debt Restructuring.
What is Corporate Debt Restructuring?

Corporate Debt Restructuring (CDR) is restructuring of outstanding debts of company when it
find it is difficult to repay the same.
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Any change in the terms and conditions of the loan or credit, especially in respect of its
servicing is called restructuring of debt.
Corporate Debt Restructuring (CDR) or simply restructuring of loans and advances, with all its
pros and cons, is an effective financial tool, especially during the times of crisis are in
smoothening the adverse effects of economic downturns on the borrowers of credit as well as
their lenders.
Characteristics of Corporate Debt Restructuring
Increasing the tenure of moratorium of Loan installments.

Increasing the tenure of loan.
Reducing the rate of interest.
Converting debt in to equity.
Converting un-serviced interest portion of interest in to term loan.
Funding of the interest of both term Loans and Working Capital through FITL.
Additional funding if required
Approaches to Corporate Debt Restructuring

Key objectives of comprehensive corporate debt restructuring strategies following a financial
crisis have been to support an economy-wide recovery through: (i) facilitating the exit of
nonviable firms (i.e., firms without a reasonable prospect of achieving sustainable profitability);
and (ii) enabling the timely restructuring of debt and access to sufficient financing to sustain
viable firms.
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Corporate debt restructuring can take many forms directed to the debt and capital structure of a
firm; it can include debt rescheduling, interest rate reductions, debt-for-equity swaps and debt
forgiveness. To be successful in securing the longer term viability of corporates, debt
restructuring will often be accompanied by operational restructuring addressing the structure and
efficiency of the firms business through closures and reorganization of productive capacity.
While measures in the debt restructuring phase would evolve, three broad categories of
approaches to corporate debt restructuring in the aftermath of a financial crisis can be identified,
distinguished by varying degrees of government involvement. The categories reflect the center of
gravity of the measures from case by case market solutions to across the board governmentdetermined solutions, or an intermediate approach between the two.
A case by case, market-based, approach has been used in which private sector debtors
and creditors are generally left to determine the nature, scope and terms of the burden
sharing on a case by case basis and principally relying on market solutions (e.g.,
Hungary and Poland in the 1990s, Korea, Malaysia, and Thailand in the late 1990s).
While this approach is essentially market-oriented, the government would still have an
important role through implementing legal reforms to encourage timely market-driven
restructuring. Furthermore, fiscal support (if any) in this approach would be on an
indirect basis through support of the financial sector (e.g., use of public funds to
recapitalize domestic banks that meet certain soundness requirements, and thereby
strengthen the capacity of those banks to absorb losses within debt restructuring).
An across the board approach involves direct government involvement that determines
the method and distribution of burden sharing among relevant parties. Under this
approach, the relevant solutions are generally applicable across the board to all economic
agents in the pre-specified category, regardless of individual factors. There are two
alternative characteristic features of this approach. The first is direct fiscal support to
corporates, which could range from a predetermined amount of support for specified
purposes (e.g., to protect against foreign exchange rate risk), to tax and other fiscalrelated incentives for firms that engage in restructuring. The second is a legislatively
mandated absorption of losses by creditors; such a strategy should be avoided given the
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risks of legal challenge and undermining the credit culture of a country. (Mexico and
Chile government had adopted this approach in 1982).
An intermediate approach has been applied that relies on case by case negotiations,
supported by government financial incentives, bolstered by legal and regulatory reforms,
and establishment of public entities to galvanize debt restructuring.
Without exception, all country experiences of wide scale corporate debt restructuring have been
mixed and have involved lengthy and difficult processes. While any approach needs to be
tailored to the circumstances of a countryincluding macroeconomic conditions, composition of
debt and legal/institutional frameworkthe experience with corporate debt restructurings in the
aftermath of systemic crises indicates that a properly designed intermediate strategy would
generally be expected to make the best use of limited fiscal resources and avoid shifting the
burden of restructuring unsustainably to creditors. A good CDR mechanism must discourage
strategic behavior by creditors and debtors and should not discriminate between foreign and
domestic creditors.
London Approach:
Parallel to reform of the legal framework, some degree of government involvement in supporting
guidelines for out-of-court restructurings would facilitate wide scale debt restructurings. There is
substantial international experience from which to draw.
The so-called London Approach has influenced the evolution of government sponsored
guidelines for multicreditor out-of-court debt restructurings. Under the leadership of the Bank of
England, UK banks developed the London Approach as a set of informal guidelines on a
collective process for voluntary workouts to restructure debts of corporates in distress, while
maximizing their value as going concerns in 1970. Subsequently, countries facing wide scale
corporate debt distress in the late 1990s turned to the London Approach as a basis to develop
their own guidelines to encourage out-of-court corporate debt workouts. For instance, in
Indonesia, Korea, Malaysia, Thailand and also India, the London Approach was modified
through enhancing the centralized role of government agencies to provide incentives for
restructurings. Furthermore, in these country cases, government enhancements were added to
establish a more structured framework to support restructurings.
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Concept on CDR and relevance to insolvency

The concept of restructuring holds relevance in the context of insolvency when the company is in
financial distress as restructuring of a company is done when the company essentially has a
viable business but owing to external factors, it has a bad balance sheet and therefore incurs
losses. These external factors may be factors such as government policy, change of interest rates,
pressure on the domestic currency, among other factors. These situations are beyond the
companys control and when a company tends to have a bad balance sheet owing to such
unfavorable conditions, it has to be given another opportunity to manage its assets and liabilities
and therefore here the role of debt restructuring is important.
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The basic objective of debt restructuring is to ensure that the companys business stays viable in
the long term and the creditors in turn enter into different arrangements with the company with
respect to foregoing a part of the loan, or exchanging a part of the debt for equity shares in the
company, which is also referred to as the debt equity swap, or creditors agreeing to a fixed
moratorium period where both the company and the creditors agree to refrain from taking any
action against each other during the fixed period.
The concept of corporate debt restructuring is part of the external restructuring mechanism of the
company where it has to ensure that it has the assets to back the restructuring program, because
once the company enters into the zone of insolvency, it has little choices to make and prolonged
insolvency then becomes a ground of winding up the company and it loses its separate legal
identity. However, if proper arrangements are made with the creditors, both the company and the
lenders are satisfied with it and the company is able to keep its business thriving.
Corporate Debt Restructuring (CDR) can take a variety of forms. The plan can provide for
conversion of debt into equity, or preference shares convertible into ordinary shares, adjustment
of secured creditors rights, a compromise in which creditors waive a part of their claims or
extend term of their debts, modification of Inter Creditor Agreements (ICAs), valuation and
settlement of contingent claims, and the distribution of assets and discharge of liabilities of
members of a group of companies where these have become inextricably entangled so as to make
it difficult to establish the assets and liabilities of any individual company within the group.
Basic principles of Corporate Debt Restructuring

The international federation of insolvency practitioners (INSOL International) published in 2000
the Statement of Principles for a Global Approach to Multi-Creditor Workouts. These principles
build on the London Approach.
First principle: Where a debtor is found to be in financial difficulties, all relevant

creditors should be prepared to cooperate with each other to give sufficient (though
limited) time (a standstill period) to the debtor for information about the debtor to be
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obtained and evaluated, and for proposals for resolving the debtors financial difficulties
to be formulated and assessed, unless such a course is inappropriate in a particular case.
Second principle: During the standstill period, all relevant creditors should agree to
refrain from taking any steps to enforce their claims against or (otherwise than by
disposal of their debt to a third party) to reduce their exposure to the debtor, but are
entitled to expect that during the standstill period their position relative to other creditors
will not be prejudiced.
Third principle: During the standstill period, the debtor should not take any action that
might adversely affect the prospective return to relevant creditors (either collectively or
individually) as compared with the position at the standstill commencement date.
Fourth principle: The interests of relevant creditors are best served by coordinating their
response to a debtor in financial difficulty. Such coordination will be facilitated by the
selection of one or more representative coordination committees and by the appointment
of professional advisers to advise and assist such committees and, where appropriate, the
relevant creditors participating in the process as a whole.
Fifth principle: During the standstill period, the debtor should provide, and allow
relevant creditors and/or their professional advisors reasonable and timely access to all
relevant information relating to its assets, liabilities, business and prospects, in order to
enable proper evaluation to be made of its financial position and any proposals to be
made to relevant creditors.
Sixth principle: Proposals for resolving the financial difficulties of the debtor and, so far
as practicable, arrangements between relevant creditors relating to any standstill, should
reflect applicable law and the relative positions of relevant creditors at the standstill
commencement date.
Seventh principle: Information obtained for the purposes of the process concerning the
assets, liabilities and business of the debtor and any proposals for resolving its difficulties
should be made available to all relevant creditors and should, unless already publicly
available, be treated as confidential.
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Eighth principle: If additional funding is provided during the standstill period or under
any rescue or restructuring proposals, the repayment of such additional funding should,
so far as practicable, be accorded priority status as compared to other indebtedness or
claims of relevant creditors.
Regard to the INSOL Principles remains a useful starting point in the design of out of court debt
restructuring guidelines. However, where creditors are large in number, diversified beyond banks
and include both domestic and international interests, coordination problems become more
difficult to manage within a London Approach model: specifically, unanimous agreement among
creditors and voluntary adherence to standstills can prove a major impediment to operation of
out-of-court restructuring principles.
Importance of CDR
Restructuring is a societal convention to attempt to assist anyone in distress. Similarly,
restructuring is a tool to lend a hand of assistance to borrowers who are temporarily in distress, in
particular, where the distress is caused by circumstances beyond the control of the borrower.
Thus, debt restructuring may be required under certain circumstances viz. a general downturn in
the economy which results in the deterioration in the financial health of borrowers. It may also
be warranted in case of emergence of legal or other issues that cause delays, particularly in cases
of project implementation. External developments, such as global factors may also result in
widespread impact on the financial health of borrowers and may necessitate use of restructuring
as a tool to help the borrower tide over difficult circumstances.
The benefits of CDR from the point of view of corporate are as follows:
Avoid Business Bankruptcy
Satisfy creditors based on what your business can afford

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Reduce debt and stretch it out over time into fixed, affordable monthly payments
Spend less time dealing with creditors, collection agencies and attorneys
Spend more time creating revenue and optimizing your business
Keep doors open and retain management control
Avoid unnecessary legal fees
Balance budget and manage cash flow
Preserve vendor relations and keep vital supply lines open
Rebuild credit and credibility
Corporate Debt Restructuring: The Indian Mechanism

In 2001, the RBI set up the corporate debt restructuring (CDR) mechanism as a voluntary
mechanism to facilitate restructuring debts of viable corporates 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 noninstitutional 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
16
May 2013, bringing in several new and important changes. The CDR regime is briefly described
below.
Objective
The objective of the Corporate Debt Restructuring (CDR) framework is to ensure timely and
transparent mechanism for restructuring the corporate debts of viable entities facing problems,
outside the purview of BIFR, DRT and other legal proceedings, for the benefit of all concerned.
In particular, the framework will aim at preserving viable corporates that are affected by certain
internal and external factors and minimize the losses to the creditors and other stakeholders
through an orderly and coordinated restructuring programme.
Structure
CDR system in the country will have a three tier structure:
CDR Standing Forum and its Core Group
CDR Empowered Group
CDR Cell
CDR Standing Forum
The CDR Standing Forum would be the representative general body of all financial institutions
and banks participating in CDR system. All financial institutions and banks should participate in
the system in their own interest. CDR Standing Forum will be a self-empowered body, which
will lay down policies and guidelines, and monitor the progress of corporate debt restructuring.
The Forum will also provide an official platform for both the creditors and borrowers (by
consultation) to amicably and collectively evolve policies and guidelines for working out debt
restructuring plans in the interests of all concerned. The CDR Standing Forum shall comprise of
Chairman & Managing Director, Industrial Development Bank of India Ltd; Chairman, State
Bank of India; Managing Director & CEO, ICICI Bank Limited; Chairman, Indian Banks'
Association as well as Chairmen and Managing Directors of all banks and financial institutions
participating as permanent members in the system. Since institutions like Unit Trust of India,
General Insurance Corporation, Life Insurance Corporation may have assumed exposures on
certain borrowers, these institutions may participate in the CDR system. The RBI would not be a
17
member of the CDR Standing Forum and Core Group. Its role will be confined to providing
broad guidelines.
The Forum would also lay down the policies and guidelines including those relating to the
critical parameters for restructuring (for example, maximum period for a unit to become viable
under a restructuring package, minimum level of promoters sacrifice etc.) to be followed by the
CDR Empowered Group and CDR Cell for debt restructuring and would ensure their smooth
functioning and adherence to the prescribed time schedules for debt restructuring. It can also
review any individual decisions of the CDR Empowered Group and CDR Cell. The CDR
Standing Forum may also formulate guidelines for dispensing special treatment to those cases,
which are complicated and are likely to be delayed beyond the time frame prescribed for
processing.
CDR Empowered Group
The individual cases of corporate debt restructuring shall be decided by the CDR Empowered
Group, consisting of ED level representatives of Industrial Development Bank of India Ltd.,
ICICI Bank Ltd. and State Bank of India as standing members, in addition to ED level
representatives of financial Institutions and banks who have an exposure to the concerned
company. The level of representation of banks/ financial institutions on the CDR Empowered
Group should be at a sufficiently senior level to ensure that concerned bank / FI abides by the
necessary commitments including sacrifices, made towards debt restructuring.
There should be a general authorisation by the respective Boards of the participating institutions /
banks in favour of their representatives on the CDR Empowered Group, authorizing them to take
decisions on behalf of their organization, regarding restructuring of debts of individual
corporates. The CDR Empowered Group will consider the preliminary report of all cases of
requests of restructuring, submitted to it by the CDR Cell. After the Empowered Group decides
that restructuring of the company is prima-facie feasible and the enterprise is potentially viable in
terms of the policies and guidelines evolved by Standing Forum, the detailed restructuring
package will be worked out by the CDR Cell in conjunction with the Lead Institution.
The CDR Empowered Group would be mandated to look into each case of debt restructuring,
examine the viability and rehabilitation potential of the Company and approve the restructuring
18
package within a specified time frame of 90 days, or at best within 180 days of reference to the
Empowered Group.
The CDR Empowered Group shall decide on the acceptable viability benchmark levels on the
following illustrative parameters, which may be applied on a case-by-case basis, based on the
merits of each case:
Return on Capital Employed (ROCE),

Debt Service Coverage Ratio (DSCR),
Gap between the Internal Rate of Return (IRR) and the Cost of Fund (CoF),
Extent of sacrifice.
The decisions of the CDR Empowered Group shall be final. If restructuring of debt is found to be
viable and feasible and approved by the Empowered Group, the company would be put on the
restructuring mode. If restructuring is not found viable, the creditors would then be free to take
necessary steps for immediate recovery of dues and / or liquidation or winding up of the
company, collectively or individually
CDR Cell
The CDR Standing Forum and the CDR Empowered Group will be assisted by a CDR Cell in all
their functions. The CDR Cell will make the initial scrutiny of the proposals received from
borrowers / creditors, by calling for proposed rehabilitation plan and other information and put
up the matter before the CDR Empowered Group, within one month to decide whether
rehabilitation is prima facie feasible. If found feasible, the CDR Cell will proceed to prepare
detailed Rehabilitation Plan with the help of creditors and, if necessary, experts to be engaged
from outside. If not found prima facie feasible, the creditors may start action for recovery of their
dues.
All references for corporate debt restructuring by creditors or borrowers will be made to the
CDR Cell. It shall be the responsibility of the lead institution / major stakeholder to the
corporate, to work out a preliminary restructuring plan in consultation with other stakeholders
and submit to the CDR Cell within one month. The CDR Cell will prepare the restructuring plan
in terms of the general policies and guidelines approved by the CDR Standing Forum and place
for consideration of the Empowered Group within 30 days for decision. The Empowered Group
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can approve or suggest modifications but ensure that a final decision is taken within a total
period of 90 days. However, for sufficient reasons the period can be extended up to a maximum
of 180 days from the date of reference to the CDR Cell.
The CDR Standing Forum, the CDR Empowered Group and CDR Cell is at present housed in
Industrial Development Bank of India Ltd. However, it may be shifted to another place if
considered necessary, as may be decided by the Standing Forum.
Category of Corporates
It is observed that borrower-Corporates get into a stress situation because of various external and
internal factors. The restructuring schemes are accordingly formulated envisaging various actions
on the part of the borrowers and participating lenders. Based on experience and various features
of the borrower-corporates and their promoters/sponsors, the borrower-corporates are categorized
into four Classes for the purpose of stipulation of standard terms & conditions under the CDR
Mechanism. The classification is as under:
Borrower Class 'A': Corporates affected by external factors pertaining economy and
Industry.
Borrower Class 'B': Corporates/promoters affected by external factors and also having
weak resources, inadequate vision, and not having support of professional management.
Borrower Class 'C': Over-ambitious promoters; and borrower-corporates which diverted
funds to related/unrelated fields with/without lenders' permission.

Borrower Class 'D': Financially undisciplined borrower-corporates.
The CDR Mechanism is not applicable to accounts involving only one financial institution or one
bank. The CDR mechanism will cover only multiple banking accounts / syndication / consortium
accounts of corporate borrowers with outstanding fund-based and non-fund based exposure of
Rs.10 crore and above by banks and institutions.
Category 1 CDR system
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It is applicable only to accounts classified as 'standard' and 'sub-standard'. There may be a

situation where a small portion of debt by a bank might be classified as doubtful. In that
situation, if the account has been classified as standard/ substandard in the books of at least
90% of creditors (by value), the same would be treated as standard / substandard, only for the
purpose of judging the account as eligible for CDR, in the books of the remaining 10% of
creditors. There would be no requirement of the account / company being sick, NPA or being in
default for a specified period before reference to the CDR system. However, potentially viable
cases of NPAs will get priority. While corporates indulging in frauds and malfeasance even in a
single bank will continue to remain ineligible for restructuring under CDR mechanism. BIFR
cases are not eligible for restructuring under the CDR system. However, large value BIFR cases,
may be eligible for restructuring under the CDR system if specifically recommended by the CDR
Core Group.
Category 2 CDR System
There have been instances where the projects have been found to be viable by the creditors but
the accounts could not be taken up for restructuring under the CDR system as they fell under
doubtful category. Hence, a second category of CDR is introduced for cases where the accounts
have been classified as doubtful in the books of creditors, and if a minimum of 75% of creditors
(by value) and 60% creditors (by number) satisfy themselves of the viability of the account and
consent for such restructuring, subject to the following conditions:
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. In other words, under the proposed second category of the CDR mechanism, the
existing loans will only be restructured and it would be up to the promoter to firm up additional
financing arrangement with new or existing creditors individually.
All other norms under the CDR mechanism such as the standstill clause, asset classification
status during the pendency of restructuring under CDR, etc., will continue to be applicable to this
category also.
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Financial Viability Parameters

The following financial ratios are essential when a debt restructurization has to be done along
with the adjustments that have to be considered while calculating the individual components of
the formulas:
The Return on Capital Employed (ROCE) reflects the earning capacity of assets deployed.
ROCE is expressed as a percentage of total earnings (return) net of depreciation to the total
capital employed. Total Earnings is PBT plus total interest plus lease rentals.
Capital Employed is the aggregate of net fixed assets excluding capital work in progress, lease
rentals payable, investments, and total current assets less creditors and provisions.
Normally, intangible assets are excluded for calculation of ROCE. Having regard to the fact that
stressed standard assets as well as sub-standard and doubtful assets are considered for
restructuring, it may be possible that fixed assets in such cases might be depreciated to a large
extent due to accounting practices although the facilities might not have been utilized. Similarly,
interest on loans accrued and fallen due but not paid, might have been used to finance cash
losses. In other words, the fund is reinvested in the project. These normally get reflected in
accumulated loss, which is treated as intangible asset. Therefore, while working out the total
capital employed, suitable adjustment may be made for unabsorbed depreciation and unserviced
interest to lenders. A minimum ROCE equivalent to 5 year G-Sec plus 2% may be considered as
adequate.
The Debt Service Coverage Ratio (DSCR) represents the debt servicing capability of the
borrower. In the normal course, DSCR is the ratio of gross cash available to meet the debtservicing requirement. Gross cash available is the sum of gross cash accrual plus interest on term
debt plus lease rentals. Debt servicing requirement is sum of repayment of term debt, interest on
term debt plus lease rent payable.
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Gross cash accrual may not be considered as a true representation of available cash flow to
service debt as gross cash accrual does not take into account the actual cash available after
netting out the variation in stocks/inventory position. [It has to be acknowledged that, interest
and principal cannot be serviced out of earnings, which is an accounting concept.] Debt
servicing has to be made in cash. Many transactions and accounting entries can affect earnings,
but not cash. Therefore, for calculation of DSCR, actual cash available with the borrower should
be taken into consideration and accordingly the DSCR calculation for restructured assets should
be as under:
Available Cash Flow (ACF) will be net cash position during the year (total gross profit plus
outside funds if any available less total requirement including build-up of inventory/debtor /
normal capital expenditure etc.) repayment of public deposits should be included for calculation
of DSCR.
The adjusted Debt Service Coverage Ratio (DSCR) should be >1.25 within the 7 years period in
which the unit should become viable and on year-to-year basis DSCR to be above 1. The normal
DSCR for 10 years repayment period should be around 1.33:1.
Gap between Internal Rate of Return and Cost of Capital
The Internal Rate of Return (IRR) is computed as the post-tax return on capital employed during
the project life based on discounted (net) cash flow method. Cash outflows each year would
include capital expenditure on the project and increase in gross working capital. Cash inflows
each year would include inflows from the operations of the project each year, recovery of
working capital in the last year of project life and residual value of capital assets in the last year
of project life.
While the above definition may be relevant for project finance, for restructured cases, the
investment would have already taken place and the fixed assets would have depreciated to a large
extent for such existing cases. While the year of restructuring could be considered as the zero
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year, aggregate of net fixed assets, net working capital and investments could be treated as total
assets deployed. Cash inflows would have the same definition as for project finance. Project life
should be considered as 15 years irrespective of the vintage of the facilities but depending on
economic life.
Cost of capital is the post-tax weighted average cost of the funds employed. Since the basic
purpose of the restructuring exercise is to recover the lenders dues, it is felt that zero cost could
be assigned to equity funds (equity and reserves). Cost to be assigned to the debt would be the
actual cost proposed in the restructuring package. Calculation of tax shield for the purpose of
working out the effective cost of debt funds will be as per usual institutional guidelines.
The benchmark gap between Internal Rate of Return and Average Cost of Funds should be at
least one percent.
Extent of Sacrifice
Waivers and sacrifices in a stressed asset which approaches lenders for restructuring would
depend on the state of affairs and the viability of the borrower-corporate as well as the possibility
of its revival/survival. Since the basic objective of the restructuring exercise is to recover the
lenders dues and ensure productive use of assets, the extent of sacrifice would be a function of
the quantum of loan, past payment record, interest rates charged and booked to profit in the past,
as also alternative avenues available for recovery. Considering the very low probability of
recovering the entire amount of dues through legal and other routes, the chances of recovering
the dues might be better in a restructuring exercise, which also helps other stake-holders such as
labour, equity holders, the exchequer and the economy in general.
In this background, it is very difficult to evolve a benchmark for the extent of sacrifices. Going
by CDR experience, the sacrifice on the part of lenders would be waiver of liquidated damages
and in some cases compound interest. Waiver of simple interest and principal should be resorted
to in deserving cases only. Economic sacrifices in the form of reduction in interest/coupon rate
should be avoided. While the thrust of the restructuring exercise should be on recovering the
maximum possible amount from the borrowers, conversion of a part of the sacrifice into equity
or any other instrument should also be explored. This would be beneficial from the point of view
of sharing the upside when the fortunes of the company improve pursuant to restructuring.
24

Break-Even Analysis
Break-even analysis should be carried out. Operating and cash break-even points should be
worked out and they should be comparable with the industry norms.
Gross Profit Margin
Gross Profit or Earnings Before Interest, Depreciation, and Tax (EBIDTA) is considered a good
measure to compare the performance of a corporate in relation to the industry. Gross Profit
Margin (GPM) for the industry as a whole, to which the company belongs, is available in
published documents/databases (like 'Cris-Infac', 'Prowess' or similar database ventures). Wide
variation, if any, of companys GPM from the industry average would be required to be
explained with qualitative information.
While GPM is considered as a good indicator of the reasonableness of the assumptions
underlying the profitability projections, it is necessary that various elements of profitability
estimates such as capacity utilization, price trend and price realization per unit, cost structure,
etc. should be comparable to those of the operating units in the same industry. It is also suggested
that the companys past performance for say last 3-5 years and future projections for next 5 years
should be given in the restructuring package on the same worksheet to have comparison of sales,
sales realization, cost components, GP, GPM, interest cost, etc.
Loan Life Ratio
Loan life ratio (LLR) is a concept, which is used internationally in project financing activity. The
ratio is based on the available cash flow and present value principle.
The discounting factor may be the average yield expected by the lenders on the total liabilities,
or alternatively, the benchmark ROCE. This ratio is similar to the DSCR based on the modified
25
method (Actual Cash Flow method). In project financing, sometimes LLR is used to arrive at the
amount of loan that could be given to a corporate. On the same analogy, LLR can be used to
arrive at sustainable debt in a restructuring exercise as also the yield. A benchmark LLR of 1.4,
which would give a cushion of 40% to the amount of loan to be serviced, may be considered
adequate.
26
Present Status of CDR cases

Present status of CDR cases received in CDR cell are as under :
(As on 31st December 2014 since inception)
No. of
Aggregate debt (in Rs.
cases
Crore)
Total referece received by CDR cell
647
452940
Total cases approved
520
380885
Cases rejected
122
65925
Cases under consideration
6130
27
Present status of CDR cases approved by CDR cell are as under:

(As on 31st December 2014 since inception)
No. of
Aggregate debt (in Rs.
cases
Crore)
Cases executed sucessfully
77
58682
Cases withdrawn on account of package
155
50104
288
272099
failure
Live cases in CDR cell
Out of a total number of 256 cases with an aggregate debt of Rs. 116194 crore as on March 31
2010, 215 cases with an aggregate debt of Rs 104299 crore have been approved by the CDR Cell
of IDBI Bank Limited. The maximum number of cases approved by the CDR Cell belongs to the
textile sector while the maximum share of the aggregate debt approved by the CDR Cell belongs
to the Iron and Steel sector at 35.16%
The proposals for CDR reference by the corporate do not address issues like reasons for the
present state of the Corporate, areas of Management failure, steps proposed to ensure nonrepetition, promoters sacrifice, assumptions of CDR package and basis thereof, what happens if
the entire debt is considered sustainable and sensitivity analysis at different interest rates which
needs to be looked into, informed Shri Sona Lal Datta, Assistant General Manager, Consultancy
Services, State Bank of India, Essar Steel, Essar Oil, Jindal Steel, Jsw, Ispat Industries, Mukund,
Neelanchal Ispat, India Cements, Saurastra Cements, Arvind Mills, Dhampur Sugars, Mawana
Sugar, Nfcl, Cesc, Wockhardt, Vishal Retail were some of the companies that went through CDR
Mechanism, informed Shri Ravindra Loonkar, Vice President, SBI Capital Market Limited at the
PHD Chamber Workshop.
28
It was highlighted by the industry representatives at PHD Chamber that the CDR cell does not
address the needs of the small scale sector and a rethinking is required to wards that aspect by the
CDR Cell.
Prudential and Accounting Issues
As per RBI guidelines, the regulatory concession in asset classification and provisioning will be
available if there is compliance of six conditions stipulated in RBI guidelines viz.
The dues to the bank are fully secured. The condition of being fully secured by tangible
security will not be applicable in the infrastructure projects, provided the cash flows generated
from these projects are adequate for repayment of advance, the financing banks have in place an
appropriate mechanism to escrow the cash flows, and also have a clear and legal first claim on
these cash flows.
The unit becomes viable in 10 years, if it is engaged in infrastructure activities and in 7 years in
the case of other units.
The repayment period of the restructured advance including moratorium period, if any, does not
exceed 15 years in the case of infrastructure advances and 10 years in the case of other advances.
Promoters sacrifice and additional funds brought by them should be minimum of 15% of the
banks sacrifice.
Personal Guarantee is offered by the promoter except when the unit is affected by the external
factors pertaining to the economy and industry,
The restructuring under consideration is not a repeated restructuring.
29
CDR Mechanism in India

Objective
The objective of the Corporate Debt Restructuring (CDR) framework is to ensure timely and
transparent mechanism for restructuring the corporate debts of viable entities facing problems,
outside the purview of BIFR, DRT and other legal proceedings, for the benefit of all concerned.
In particular, the framework will aim at preserving viable corporates that are affected by certain
internal and external factors and minimize the losses to the creditors and other stakeholders
through an orderly and coordinated restructuring programme.
Structure
CDR system in the country will have a three tier structure:
CDR Standing Forum and its Core Group
CDR Empowered Group
CDR Cell
CDR Standing Forum
The CDR Standing Forum would be the representative general body of all financial institutions
and banks participating in CDR system. All financial institutions and banks should participate in
the system in their own interest. CDR Standing Forum will be a self-empowered body, which
will lay down policies and guidelines, and monitor the progress of corporate debt restructuring.
The Forum will also provide an official platform for both the creditors and borrowers (by
consultation) to amicably and collectively evolve policies and guidelines for working out debt
restructuring plans in the interests of all concerned. The CDR Standing Forum shall comprise of
Chairman & Managing Director, Industrial Development Bank of India Ltd; Chairman, State
Bank of India; Managing Director & CEO, ICICI Bank Limited; Chairman, Indian Banks'
Association as well as Chairmen and Managing Directors of all banks and financial institutions
participating as permanent members in the system. Since institutions like Unit Trust of India,
General Insurance Corporation, Life Insurance Corporation may have assumed exposures on
30
certain borrowers, these institutions may participate in the CDR system. The RBI would not be a
member of the CDR Standing Forum and Core Group. Its role will be confined to providing
broad guidelines.
The Forum would also lay down the policies and guidelines including those relating to the
critical parameters for restructuring (for example, maximum period for a unit to become viable
under a restructuring package, minimum level of promoters sacrifice etc.) to be followed by the
CDR Empowered Group and CDR Cell for debt restructuring and would ensure their smooth
functioning and adherence to the prescribed time schedules for debt restructuring. It can also
review any individual decisions of the CDR Empowered Group and CDR Cell. The CDR
Standing Forum may also formulate guidelines for dispensing special treatment to those cases,
which are complicated and are likely to be delayed beyond the time frame prescribed for
processing.
CDR Empowered Group

The individual cases of corporate debt restructuring shall be decided by the CDR Empowered
Group, consisting of ED level representatives of Industrial Development Bank of India Ltd.,
ICICI Bank Ltd. and State Bank of India as standing members, in addition to ED level
representatives of financial Institutions and banks who have an exposure to the concerned
company. The level of representation of banks/ financial institutions on the CDR Empowered
Group should be at a sufficiently senior level to ensure that concerned bank / FI abides by the
necessary commitments including sacrifices, made towards debt restructuring. There should be a
general authorisation by the respective Boards of the participating institutions / banks in favour
of their representatives on the CDR Empowered Group, authorizing them to take decisions on
behalf of their organization, regarding restructuring of debts of individual corporates. The CDR
Empowered Group will consider the preliminary report of all cases of requests of restructuring,
submitted to it by the CDR Cell. After the Empowered Group decides that restructuring of the
company is prima-facie feasible and the enterprise is potentially viable in terms of the policies
and guidelines evolved by Standing Forum, the detailed restructuring package will be worked out
by the CDR Cell in conjunction with the Lead Institution. The CDR Empowered Group would be
31
mandated to look into each case of debt restructuring, examine the viability and rehabilitation
potential of the Company and approve the restructuring package within a specified time frame of
90 days, or at best within 180 days of reference to the Empowered Group. The CDR Empowered
Group shall decide on the acceptable viability benchmark levels on the following illustrative
parameters, which may be applied on a case-by-case basis, based on the merits of each case:
Return on Capital Employed (ROCE),
Debt Service Coverage Ratio (DSCR),
Gap between the Internal Rate of Return (IRR) and the Cost of Fund (CoF),
Extent of sacrifice.
The decisions of the CDR Empowered Group shall be final. If restructuring of debt is found to be
viable and feasible and approved by the Empowered Group, the company would be put on the
restructuring mode. If restructuring is not found viable, the creditors would then be free to take
necessary steps for immediate recovery of dues and / or liquidation or winding up of the
company, collectively or individually CDR Cell
The CDR Standing Forum and the CDR Empowered Group will be assisted by a CDR Cell in all
their functions. The CDR Cell will make the initial scrutiny of the proposals received from
borrowers / creditors, by calling for proposed rehabilitation plan and other information and put
up the matter before the CDR Empowered Group, within one month to decide whether
rehabilitation is prima facie feasible. If found feasible, the CDR Cell will proceed to prepare
detailed Rehabilitation Plan with the help of creditors and, if necessary, experts to be engaged
from outside. If not found prima facie feasible, the creditors may start action for recovery of their
dues.
All references for corporate debt restructuring by creditors or borrowers will be made to the
CDR Cell. It shall be the responsibility of the lead institution / major stakeholder to the
corporate, to work out a preliminary restructuring plan in consultation with other stakeholders
and submit to the CDR Cell within one month. The CDR Cell will prepare the restructuring plan
in terms of the general policies and guidelines approved by the CDR Standing Forum and place
for consideration of the Empowered Group within 30 days for decision. The Empowered Group
32
can approve or suggest modifications but ensure that a final decision is taken within a total
period of 90 days. However, for sufficient reasons the period can be extended up to a maximum
of 180 days from the date of reference to the CDR Cell.
The CDR Standing Forum, the CDR Empowered Group and CDR Cell is at present housed in
Industrial Development Bank of India Ltd. However, it may be shifted to another place if
considered necessary, as may be decided by the Standing Forum.
It is observed that borrower-Corporates get into a stress situation because of various external and
internal factors. The restructuring schemes are accordingly formulated envisaging various actions
on the part of the borrowers and participating lenders. Based on experience and various features
of the borrower-corporates and their promoters/sponsors, the borrower-corporates are categorized
into four Classes for the purpose of stipulation of standard terms & conditions under the CDR
Mechanism. The classification is as under:
Borrower Class 'A': Corporates affected by external factors pertaining economy and Industry.
Borrower Class 'B': Corporates/promoters affected by external factors and also having weak
resources, inadequate vision, and not having support of professional management.
Borrower Class 'C': Over-ambitious promoters; and borrower-corporates which diverted funds
to related/unrelated fields with/without lenders' permission.
Borrower Class 'D': Financially undisciplined borrower-corporates.
The CDR Mechanism is not applicable to accounts involving only one financial institution or one
bank. The CDR mechanism will cover only multiple banking accounts / syndication / consortium
accounts of corporate borrowers with outstanding fund-based and non-fund based exposure of
Rs.10 crore and above by banks and institutions.
Category 1 CDR system
It is applicable only to accounts classified as 'standard' and 'sub-standard'. There may be a
situation where a small portion of debt by a bank might be classified as doubtful. In that
33
situation, if the account has been classified as standard/ substandard in the books of at least
90% of creditors (by value), the same would be treated as standard / substandard, only for the
purpose of judging the account as eligible for CDR, in the books of the remaining 10% of
creditors. There would be no requirement of the account / company being sick, NPA or being in
default for a specified period before reference to the CDR system. However, potentially viable
cases of NPAs will get priority. While corporates indulging in frauds and malfeasance even in a
single bank will continue to remain ineligible for restructuring under CDR mechanism. BIFR
cases are not eligible for restructuring under the CDR system. However, large value BIFR cases,
may be eligible for restructuring under the CDR system if specifically recommended by the CDR
Core Group.
Category 2 CDR System
There have been instances where the projects have been found to be viable by the creditors but
the accounts could not be taken up for restructuring under the CDR system as they fell under
doubtful category. Hence, a second category of CDR is introduced for cases where the accounts
have been classified as doubtful in the books of creditors, and if a minimum of 75% of creditors
(by value) and 60% creditors (by number) satisfy themselves of the viability of the account and
consent for such restructuring, subject to the following conditions:
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. In other words, under the proposed second category of the CDR mechanism, the
existing loans will only be restructured and it would be up to the promoter to firm up additional
financing arrangement with new or existing creditors individually.
All other norms under the CDR mechanism such as the standstill clause, asset classification
status during the pendency of restructuring under CDR, etc., will continue to be applicable to this
category also.
34
Financial Viability Parameters

The following financial ratios are essential when a debt restructurization has to be done along
with the adjustments that have to be considered while calculating the individual components of
the formulas:
The Return on Capital Employed (ROCE) reflects the earning capacity of assets deployed.
ROCE is expressed as a percentage of total earnings (return) net of depreciation to the total
capital employed. Total Earnings is PBT plus total interest plus lease rentals.
Capital Employed is the aggregate of net fixed assets excluding capital work in progress, lease
rentals payable, investments, and total current assets less creditors and provisions.
Normally, intangible assets are excluded for calculation of ROCE. Having regard to the fact that
stressed standard assets as well as sub-standard and doubtful assets are considered for
restructuring, it may be possible that fixed assets in such cases might be depreciated to a large
extent due to accounting practices although the facilities might not have been utilized. Similarly,
interest on loans accrued and fallen due but not paid, might have been used to finance cash
losses. In other words, the fund is reinvested in the project. These normally get reflected in
accumulated loss, which is treated as intangible asset. Therefore, while working out the total
capital employed, suitable adjustment may be made for unabsorbed depreciation and unserviced
interest to lenders. A minimum ROCE equivalent to 5 year G-Sec plus 2% may be considered as
adequate.
The Debt Service Coverage Ratio (DSCR) represents the debt servicing capability of the
borrower. In the normal course, DSCR is the ratio of gross cash available to meet the debtservicing requirement. Gross cash available is the sum of gross cash accrual plus interest on term
debt plus lease rentals. Debt servicing requirement is sum of repayment of term debt, interest on
term debt plus lease rent payable.
35
Gross cash accrual may not be considered as a true representation of available cash flow to
service debt as gross cash accrual does not take into account the actual cash available after
netting out the variation in stocks/inventory position. [It has to be acknowledged that, interest
and principal cannot be serviced out of earnings, which is an accounting concept.] Debt
servicing has to be made in cash. Many transactions and accounting entries can affect earnings,
but not cash. Therefore, for calculation of DSCR, actual cash available with the borrower should
be taken into consideration and accordingly the DSCR calculation for restructured assets should
be as under:
Available Cash Flow (ACF) will be net cash position during the year (total gross profit plus
outside funds if any available less total requirement including build-up of inventory/debtor /
normal capital expenditure etc.) repayment of public deposits should be included for calculation
of DSCR.
The adjusted Debt Service Coverage Ratio (DSCR) should be >1.25 within the 7 years period in
which the unit should become viable and on year-to-year basis DSCR to be above 1. The normal
DSCR for 10 years repayment period should be around 1.33:1.
Gap between Internal Rate of Return and Cost of Capital
The Internal Rate of Return (IRR) is computed as the post-tax return on capital employed during
the project life based on discounted (net) cash flow method. Cash outflows each year would
include capital expenditure on the project and increase in gross working capital. Cash inflows
each year would include inflows from the operations of the project each year, recovery of
working capital in the last year of project life and residual value of capital assets in the last year
of project life.
While the above definition may be relevant for project finance, for restructured cases, the
investment would have already taken place and the fixed assets would have depreciated to a large
extent for such existing cases. While the year of restructuring could be considered as the zero
36
year, aggregate of net fixed assets, net working capital and investments could be treated as total
assets deployed. Cash inflows would have the same definition as for project finance. Project life
should be considered as 15 years irrespective of the vintage of the facilities but depending on
economic life.
Cost of capital is the post-tax weighted average cost of the funds employed. Since the basic
purpose of the restructuring exercise is to recover the lenders dues, it is felt that zero cost could
be assigned to equity funds (equity and reserves). Cost to be assigned to the debt would be the
actual cost proposed in the restructuring package. Calculation of tax shield for the purpose of
working out the effective cost of debt funds will be as per usual institutional guidelines.
The benchmark gap between Internal Rate of Return and Average Cost of Funds should be at
least one percent.
Extent of Sacrifice
Waivers and sacrifices in a stressed asset which approaches lenders for restructuring would
depend on the state of affairs and the viability of the borrower-corporate as well as the possibility
of its revival/survival. Since the basic objective of the restructuring exercise is to recover the
lenders dues and ensure productive use of assets, the extent of sacrifice would be a function of
the quantum of loan, past payment record, interest rates charged and booked to profit in the past,
as also alternative avenues available for recovery. Considering the very low probability of
recovering the entire amount of dues through legal and other routes, the chances of recovering
the dues might be better in a restructuring exercise, which also helps other stake-holders such as
labour, equity holders, the exchequer and the economy in general.
In this background, it is very difficult to evolve a benchmark for the extent of sacrifices. Going
by CDR experience, the sacrifice on the part of lenders would be waiver of liquidated damages
and in some cases compound interest. Waiver of simple interest and principal should be resorted
to in deserving cases only. Economic sacrifices in the form of reduction in interest/coupon rate
should be avoided. While the thrust of the restructuring exercise should be on recovering the
maximum possible amount from the borrowers, conversion of a part of the sacrifice into equity
or any other instrument should also be explored. This would be beneficial from the point of view
of sharing the upside when the fortunes of the company improve pursuant to restructuring.
37

Break-Even Analysis
Break-even analysis should be carried out. Operating and cash break-even points should be
worked out and they should be comparable with the industry norms.
Gross Profit Margin
Gross Profit or Earnings Before Interest, Depreciation, and Tax (EBIDTA) is considered a good
measure to compare the performance of a corporate in relation to the industry. Gross Profit
Margin (GPM) for the industry as a whole, to which the company belongs, is available in
published documents/databases (like 'Cris-Infac', 'Prowess' or similar database ventures). Wide
variation, if any, of companys GPM from the industry average would be required to be
explained with qualitative information.
While GPM is considered as a good indicator of the reasonableness of the assumptions
underlying the profitability projections, it is necessary that various elements of profitability
estimates such as capacity utilization, price trend and price realization per unit, cost structure,
etc. should be comparable to those of the operating units in the same industry. It is also suggested
that the companys past performance for say last 3-5 years and future projections for next 5 years
should be given in the restructuring package on the same worksheet to have comparison of sales,
sales realization, cost components, GP, GPM, interest cost, etc.
Loan Life Ratio
Loan life ratio (LLR) is a concept, which is used internationally in project financing activity. The
ratio is based on the available cash flow and present value principle.
The discounting factor may be the average yield expected by the lenders on the total liabilities,
or alternatively, the benchmark ROCE. This ratio is similar to the DSCR based on the modified
38
method (Actual Cash Flow method). In project financing, sometimes LLR is used to arrive at the
amount of loan that could be given to a corporate. On the same analogy, LLR can be used to
arrive at sustainable debt in a restructuring exercise as also the yield. A benchmark LLR of 1.4,
which would give a cushion of 40% to the amount of loan to be serviced, may be considered
adequate.
39
Live Case Study

The Company X (due to confidentiality the original name of the company is not declared) is a
Non Banking Financial Company registered with RBI as Category A - Hire Purchase and
Leasing Company. It is primarily engaged in the business of financing of tractors, construction
equipments, commercial vehicles and other passenger carrying multi utility vehicles, cars, etc.
The companys main focus has been to finance used asset in the above segments at a gross yields
in the range of 24% to 26%. The company has built a position of distinct advantage over other
NBFC's in its core segments of semi urban and rural markets by virtue of having been present for
more than two decades & thereby catering to the needs of farmers for purchase of tractors and
farm equipment.
The company operates through a network of 48 branches located in semi urban and rural markets
of Andhra Pradesh, Tamil Nadu, Kerala, Karnataka and Maharashtra.
The two most important things that the bank considers before referring the case to the CDR
Mechanism are:
Reasons for the inability of loan the case is considered only if the reason is external like
recession, change in policies or regulations like banning of imports/ exports of particular
commodity etc. which is actually not in the hands of the promoters. If the reasons are pertaining
to the faulty business model or willful default of the promoters then the bank rejects the plea and
initiates the traditional recovery process discussed in the beginning of the report.
Future Outlook of the Company Now the bank sees that what will happen to the company if
they lend or restructure the loan. They see the past financials of the company and project the
future cash flows of the company. If the lenders are satisfied with the kind of assumptions and
future revenue generation capacity of the company only then they move forward to restructure
the loan. This also involves the quality of the tie ups that the company has roped in. Suppose the
Company tie ups includes M&M, Sonalika etc then there will be more business for the Company
X and chances of revival are much higher.
Now in the following points we will see the reasons of the failure of the debt servicing capacity
of the Company X.
40
Major Problem Areas

COMAPNY X financial position has been deteriorated due to some unavoidable external
reasons, which are enumerated as below:
Adverse Effect of reviewing accounting policy
During the course of finalization of the annual accounts of COMAPNY X for FY 2006-07, the
new management team decided to review accounting practices followed by erstwhile
management. The details of the change in the accounting policies and their impact on the
profitability are as under.
The accounting basis for Additional Finance Charges was changed from receipt basis to accrual
basis leading to increase in income by Rs 237.16 lacs.
The income on account of securitization/ assignment of receivables, which was being amortized
over the tenor of receivables, was booked upfront leading to increase in income by Rs 324.13
lacs.
Collection charges were being booked in income on accrual basis earlier. It was changed to
accounting on receipt basis. This led to a reduction in profit by Rs 2,278.58 lacs.
Certain lease transactions done in 2001 were rescheduled. The balance outstanding in such
accounts was Rs 930 lacs. As there was no realizable value, these assets were written off.
Certain accounts where the outstanding was Rs 1,787 lacs were assigned to the earlier promoters
for Rs 1,400 lacs and the difference was booked as loss.
The cumulative impact of these actions was a loss of Rs 3,034.29.
As a result of the same, the company had to declare losses to the tune of Rs.26.84 Crores. The
board adopted this review in the board meeting held on 26th Jun07, subject to results of the
ongoing verification of books of accounts.
These losses arising out of legacy issues have put the company in a tight spot in raising further
borrowings and effecting operations.
41
Failure to raise funds through Right Issue

During the month of September 2007, the Board considered a rights issue for a size of Rs.50
crores and Draft Letter of Offer was also filed with SEBI for approval. Though SEBI cleared the
issue in January 2008, the issue had to be aborted due to fall in equity markets.
Effect of failure of companys effort for a slump sale of COMAPNY Xs business
In April 2008, subsequent to abortion of rights issue, a slump sale of COMAPNY Xs business
on a going concern basis to Zwirn Pragati Capfin Private Limited was initiated to ensure that
operations of COMAPNY X run smoothly.
Company entered into Business Transfer Agreement (BTA) with ZP on 30th September 2008
for the transfer of Business of the Company, including all its tangible & intangible assets and
non-tax liabilities, by way of slump sale for a consideration of Rs. 41.10 crores. However, ZP
later offered only a reduced sale consideration of Rs. 28 Crores due to several reasons including
substantial downward revision in the future business potential of NBFCs on account of rapid
changes in the internal and external market conditions adversely affecting their viability.
But subsequently during the quarter ending 30.06.2009, Zwirn Pragati Capfin Private Limited,
terminated the Business Transfer Agreement (BTA) on account of delay from COMAPNY X in
securing sanction from banks for the slump sale within the stipulated period. Thus the companys
plan to rejuvenate its operations failed.
Global Recession and its effect on companys business
COMAPNY Xs revenue generation for the year 2008-09 was severely affected due to global
meltdown. Recovery/repayment from customers was also affected due to the slump in the market
resulting in higher default than normal. Due to slow down in the economic activity, the
realizations from the repossessed assets also came down. All these factors resulted in losses
thereby affecting the financial stability of the company
As a consequence of the termination of BTA in July 2009, all the assets and liabilities proposed
to be transferred to ZP now remained with COMAPNY X and had to be accounted for in
COMAPNY Xs books with effect from 1st October 2008. As a result, the Board advised the
42
executive management to carry out a review of the assets and liabilities so as to resume the
exercise of detailed review which was conducted in 2007 and to conclude the same and to come
up with a final report.
Future Outlook for the Company
Now the second point is focused where the banks see the following things:
The sector analysis in which the Company X is operating and study the demand supply analysis
and growth in the considered industry.
The focus on the future revenue generation capacity based on the relevant assumptions.
Marketing Viability
In our case study PNB did a Market Appraisal for the Company X to ensure future cash flows.
Though the report was not accessible but few points are stated below as per our research done on
this industry:
Demand and Supply Analysis
The Indian economy continued to grow at an enormous pace and recorded a compounded annual
growth rate (CAGR) of 8.6% between 2002-03 and 2006-07. But the recent developments in
global and domestic markets seem to force this trend to reverse because as per the recent facts
India has reached the GDP of more than 8% and the various analysts and economists continue to
remain bullish on the Indian GDP.
The severe liquidity crunch has affected the fresh disbursements of majority of asset financing
NBFCs since these companies depend on regular inflow of funds mainly from Banks and other
financial institutions.
Future Market Demand and Supply
43
Huge potential is envisaged in this sector as majority of this business segment is with unorganized financiers
The major source of revenue is from the customers who are farmers (who purchase tractors) and
logistic companies (who purchase trucks). The agriculture sector which has shown poor in terms
of growth 2008-09 remains a cause of concern for the growth but the waivers given by the GOI
to farmers on financing of agriculture equipments and machineries will give a filip to this sector.
Logistic Sector grows at approximately 1.2X the GDP of India which means that if India grows
at 9-10% (as per forecasted by various organizations), logistic sector is bound to grow at a
healthy 18-20% in future which will create more need for trucks and other vehicles and thus
more business for the Company X.
Presence of Few players due to complexity of business would mean high entry barrier and thus
fertile ground to operate for the company
Low cost of operations due to various factors like employing local manpower, offices in
rural/semi urban areas etc.
Good margins/spreads expected in future as well because of persistent demand of tractors &
construction equipments.
Now on based on certain assumptions in the following table the cash flow statement was
generated (refer: annexure 2).
2009-
2010-
2011-
2012-
2013-
Particulars
10
11
12
13
14
Interest Rate
15.0%
15.0%
15.0%
15.0%
15.0%
Interest Rate -IRR
27.5%
27.5%
27.5%
27.5%
27.5%
Interest Rate (Flat):commission
8.0%
8.0%
8.0%
8.0%
8.0%
44
Upfront processing charges
2%
2%
2%
2%
2%
New customers per month
20
150
155
155
155
Ticket Size -1 (Loan Size)in lakhs
Ticket Size -2
Ticket Size -3
%age customers in Ticket Size - 1
70%
50%
50%
50%
50%
%age of customers in Ticket Size - 2
20%
15%
15%
20%
20%
%age of customers in Ticket Size - 3
10%
35%
35%
30%
30%
No. of Months
36
36
36
36
36
customer)
No. of Months
31
31
31
31
31
disbursements
10%
10%
10%
10%
10%
Interest on cash Collateral
12%
12%
12%
12%
12%
No of customers defaulting
8%
8%
8%
8%
8%
payment (Months)
Defaulting customers turning into NPA
10%
10%
10%
10%
10%
50%
50%
50%
50%
50%
assets(Months)
12
12
12
12
12
Provision on loss Assets
100%
100%
100%
100%
100%
Asset)
8%
8%
8%
8%
8%
Repossessed assets(as a percentage of total
60%
60%
60%
60%
60%
No. of Collection in a month (per
Cash collateral as a % age of
Period in which defaulters making
NPA Provisioning (as a percentage of NPA

Assets)
Period of NPA becoming Loss
Loss assets( as a percentage of total NPA
45
NPA Asset)
After the analysis of the cash flow statement (refer: annexure 2) we came to the following
finding that the cash flow has increased from INR 3178.21 lacs in 2010-11 to INR 3359.45 lacs
in 2016-17 indicating a better and financial stable future of the Company X. The major source
will remain the cash accrual from installments and EMIs. The long term earning capacity is
affected by the companys legal binding to buy the Preference shares issued initially against the
term loan given by the bank at a premium of 3%. The increase/decrease in current liabilities from
2014-15 is zero which is questionable.
Now the bank proceeds with the debt restructuring process and decides the cut off date i.e.
March 2010 in our case.The status of loans before loan restructurization is as follows (all figures
in lacs):
Term Lenders CDR
FIs
Ing Vysya Bank
DCB
ICICI Bank
Total
Sanctione
2,500.00
d
800.00
5,884.26
9,184.26
TL
TL
US
L
Repayment
2,108.22
703.25
5,850.55
8,662.02
O/S
391.78
96.75
33.71
522.24
Working Capital Lenders (CDR)

46
Name of the Bank

Punjab National Bank
The Dhanalakashmi Bank Ltd
Bank of Baroda
Canara Bank
Indian Overseas Bank
Bank of India
The Federal Bank Ltd
State Bank of Hyderabad
Ing Vysya Bank Ltd
UCO Bank
State Bank of Travancore
YES Bank
TOTAL
Sanctioned Limit
1,000.00
500.00
216.00
1,200.00
900.00
1,500.00
1,300.00
500.00
800.00
950.00
1,000.00
1,500.00
11,366.00
Outstanding As on 31.03.10
930.08
493.41
15.36
1,214.90
828.84
1,470.55
1,261.43
469.37
785.85
937.78
962.32
1,428.29
10,798.18
Non CDR Lenders

Term debtors
Sanctioned Limit
Tamilnadu Industrial Corporation Ltd 1,000.00
Total
1,000.00
Working Capital Lenders
The Catholic Syrian Bank Ltd
850.00
HSBC
1,000.00
Outstanding
254.70
As on 31.03.10
254.70
Total
1,772.81
1,850.00
Central Electronics
Fullerton
835.01
78.18
652.71
Grand Total
Restructuring Proposal
730.89
As per the Guidelines in this proposal all the banks whose exposure were less than INR 1 crore
had the option of this exiting the scheme at a discount of 40%. Under this clause the following
three banks exited the Restructuring Scheme.
Lenders
Total O/S
60%
40%
47
ICICI (TL)
Bank of Baroda (WC)
Development Credit bank Ltd
33.71
15.36
96.75
20.226
9.216
58.05
13.484
6.144
38.7
(TL)
For the rest of the lenders the restructurization of debts was done in the following manner:
Restructurization of term loans
The total outstanding term loans for the company X (NBFC) as on the cut off date 31st March
2010 is as follows:
Sno.
1.
2.
Banks
Ing Vysya Bank Ltd
The Tamilnadu Industrial Investment Corporation Ltd
TOTAL
Amount
391.78
254.70
646.48
The revised repayment of the installments and interest is shown in the following chart.
It can be seen that no principal payment will be taken by the banks during the moratorium period
which has been increased from the cutoff date i.e. 31st March 2010 for a period of 18 months till
31st September 2011.
Repayment in 72 monthly installments commencing from 01.10.11 and ending on 30.09.2017
Term loan to carry ballooning interest rate of 7% p.a.in the year 2009-10 which shall be
increased by 1% each year till it reaches a level of 10% in the year 2012-13 after which it shall
be increased by 2% for the year 2013-14 & 2014-15 and again 1% from 2015-15 till it reaches
16.50% in 2016-17 providing an ROI of 10.54% p.a. approx.
Interest From 1.04.2010 to 30.09.2011 shall be funded through FITL which sums to a total of
INR 72.35 lacs.
Repayment Schedule of Term Loan (Rs. in Lacs)
Particulars
2009-
2010-
2011-
10
11
12
2012-13
2013-14
2014-
2015-16
2016-17
15
48
(01.04.
1030.09.
10)
Repayable
Nil
Nil
yearwise
5.00
7.50%
12.50%
Opening
646.48
Balance
20.00
25.00%
30.00%
646.4
646.4
614.16
565.67
484.86
355.56
193.94
8
32.32
48.49
80.81
129.30
161.62
193.94
Closing
646.48
614.1
565.67
484.86
355.56
193.94
Balance
22.63
646.4
6
56.73
58.99
58.83
41.21
16.00
Interest rate
7%
51.72
8%
9%
10%
14%
15%
17%
FITL
22.63
51.72
63.03
12%
Restructuring of Working Capital

The existing working capital outstanding as on cutoff date and proposed restructuring thereof is
as follows:Stock on hire
Repossessed Assets
Net Current Assets available for DP
Margin (25%)
8,306.32
530.05
8,836.37
2,209.09
Drawing Power (Available)

Bank Limit
Total
6,627.28
Overdrawn/Shortfall in DP ( b-a)
12,555.63
5,928.35
As the total outstanding Working Capital loan as on cutoff date is INR 12,555.63 lacs and the
available drawing power is INR 6,627.28 lacs there is a net shortfall of INR 5,928.35 lacs. This
is termed as the irregular portion.
49

Out of the Irregular Portion 70% shall be converted into Optionally convertible Cumulative redeemable
Preference shares and Balance 30% shall be converted into Working Capital Term Loan in the following
manner:-
70%
30%
To be converted into 9%
To be converted into WCTL
OCCRPS
4,149.85
1,778.51
OCCPRS
OCCRPS to carry dividend @ 9% p.a.
OCCRPS would have to be issued within 6 months from the date of implementation of the CDR package.
OCCRPS will be issued to the lenders for a period of 8 years to be redeemed in 4 equal annual
installments at a Premium of 3.00% from 2013-14 to 2016-17 in the following manner:
Year
Percentage
Amount (Rs.
Repayment Schedule (OCCRPS of Rs. 4,149.85 lacs)

20112012-13 2013-14
2014-15
2015-16
25.00%
25.00%
25.00%
12
In lacs) (p.a.)
Premium @
Total
3% (P.a.)
Amount
2016-17
25.00%
1,037.46
1,037.46
1,037.46
1,037.46
31.12
31.12
31.12
31.12
1,068.59
1,068.59
1,068.59
1,068.59
WCTL
30% of the irregular portion to be converted into WCTL
Principal payment moratorium up to 30.09.2011.
Repayment in 72 monthly installments commencing from 01.10.11 and ending on 30.09.2017 in the
following manner:Repayment Schedule [Working Capital Term loan = Rs 1,778.51 lacs]
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
Percentage
5.00%
7.50%
12.50%
20.00%
25.00%
30.00%
Amount (Rs. In lacs) (p.a.)
88.93
133.39
222.31
355.70
444.63
533.55
50

Working Capital Term loan to carry ballooning interest rate of 7% p.a.in the year 2009-10 which shall be
increased by 1% each year till it reaches a level of 10% in the year 2012-13 after which it shall be
increased by 2% for the year 2013-14 & 2014-15 and again 1% from 2015-15 till it reaches 16.50% in
2016-17 providing an ROI of 10.54% p.a. approx.
Interest From 1.04.2010 to 30.09.2011 (moratorium period) shall be funded through FITL.
Funding of interest accruing from cut off date to 30.09.2011 by converting the same into Funded Interest
Term Loans (FITL)
Funding of interest on Term loan (Secured & Unsecured), Working Capital and Working Capital Term
Loans for 18 months from cutoff date i.e. 1.04.2010 to 30.09.2011 by converting the same into FITL.
Computation of FITL: (Rs lacs)
INTEREST ON:
Term Loan
Working Capital
WCTL
TOTAL FITL
2009-10
22.63
662.73
124.50
809.85
2010 - 11
51.72
662.73
142.28
856.73
TOTAL
74.35
1,325.46
266.78
1,666.58
FITL to be repaid in 36 monthly installments commencing from 31.10.11 and ending on 30.09.2014 in the
following manner:Year
Percentage
Amount (Rs. In
Repayment Schedule [FITL=Rs 1,666.58 lacs]

2011-12
2012-13
10.00%
45.00%
166.66
749.96
2013-14
45.00%
749.96
lacs) (p.a.)
FITL to carry ballooning interest rate of @ 6% p.a.in the year 2009-10 which shall be increased by 2% in
first year and 1% each year thereafter till it reaches a level of 11% i.e. in the year 2013-14.
Total FITL Calculation
51

INTEREST ON:
a
c
d
e
f
2009-10
(01.04.10-
2010 - 11
Term Loan
Working Capital
Unpaid interest on TL
WCTL
Unsecured Term loan
22.63
662.73
124.50
-
51.72
662.73
142.28
-
TOTAL FITL
809.85
856.73
TOTAL
74.35
1,325.46
266.78
1,666.58
Allocation of Drawing Power (DP)
The DP was also revised and allocated to each lender in the same contribution as the % share of
each lender in the sanctioned working capital limit (not outstanding WC limit). The remaining
portion of the amount lended was considered to be irregular portion and divided into OCCRPS
and WCTL as per discussed above.
SANCTI
Sl.
No
Name of the Bank
O/S
ONED
WORKI
WORKI
% share
NG
NG
(% of
DP
e DP
CAPIT
CAPITA
sanction
allocatio
(secured
Irregular
AL
ed lt)
W.cap)
Portion
WCTL
PS
Availabl
OCCR
11
Ing Vysya Bank Ltd
785.85
800.00
6.15%
407.83
407.83
378.02
113.41
264.61
22
YES Bank
1,428.29
1500.00
11.54%
764.69
764.69
663.60
199.08
464.52
33
Bank of India
1,470.55
1500.00
11.54%
764.69
764.69
705.86
211.76
494.10
44
The Federal Bank Ltd
1,261.43
1300.00
10.00%
662.73
662.73
598.70
179.61
419.09
55
Canara Bank
1,214.90
1200.00
9.23%
611.75
611.75
603.15
180.95
422.21
66
State Bank of travancore
962.32
1000.00
7.69%
509.79
509.79
452.53
135.76
316.77
52
77
Punjab National Bank
930.08
1000.00
7.69%
509.79
509.79
420.29
126.09
294.20
88
UCO Bank
937.78
950.00
7.31%
484.30
484.30
453.48
136.04
317.44
99
Indian Overseas Bank
828.84
900.00
6.92%
458.81
458.81
370.03
111.01
259.02
110
The Dhanalakashmi Bank Ltd
493.41
500.00
3.85%
254.90
254.90
238.51
71.55
166.96
111
State Bank of Hyderabad
469.37
500.00
3.85%
254.90
254.90
214.47
64.34
150.13
112
Bank of Baroda
0.00
0.00%
HSBC
942.10
1000.00
7.69%
509.79
509.79
432.31
129.69
302.62
The Catholic Syrian Bank Ltd
812.58
850.00
6.54%
433.32
433.32
379.26
113.78
265.48
12,537.5
TOTAL
100.00
13,000.00
4,137.1
6,627.28
6,627.28
5,910.22
1,773.07
Additional WC funding
The company had a cash loss adjusted of depreciation and provision for impairment to the tune
of INR 1,664 lacs which needs to be financed for the smooth working of the company. The
calculation for the funding amount is shown hereunder.
PAT (2008-09)
Add
Add
Depreciation
Extraordinary provisions Impairment
Cash Loss
Funding
6,860.03)
66.35
5,129.54
(1,664.14)
1,664.14
53

Promoters Contribution
The promoters also have to infuse in additional funds along with the lenders to compensate for
both the losses and additional current asset build up. It can be seen that the total cost of scheme is
INR 3,364.14 lacs and the lenders are giving INR 1,664.14 lacs. The difference of INR 1,700
lacs is infused by the promoters. This amount contains two component which is explained
further.
Cost Of scheme
Cash losses funding
Currrent Asset build up
Total
Means of finance
Promoter's contribution/New Investors
Additional Working Capital
Total
(Rs. In Lacs)
Amount
1,664.14
1,700.00
3,364.14
1,700.00
1,664.14
3,364.14
In this case the promoters are infusing money in the following manner:
As per the RBI guidelines the promoters has to bring in 15% of the sacrifices by lenders which is
coming out to be INR 404.07 lacs. Sacrifices are the losses to lenders that arise out of reduction
in the rates of interest and rescheduling of installments with effect from the cut-off date.
The remaining amount of promoters contribution i.e. INR 1,295.93 lacs which brought in by the
promoters through strategic investors.
54

Financial Viability
Parameters
Results
Remarks
ROCE
17.04%
Average ROCE is above the benchmark.
5years G-Sec rate

6.04%
Benchmark-2%
above 5 yrs G-sec
rate
DSCR
(adjusted)
DSCR
(Average)
1.31
Adjusted DSCR is above the benchmark rate.
Benchmark 1.25
1.44
Average DSCR is more than the benchmark rate.
Benchmark 1.33
IRR Vs.
IRR 14.73%
CoC
CoC 6.94%
Gap between CoC and IRR is 7.78% which is

above the benchmark. (Benchmark 1.00%)
Gap 7.78%
BEP
Operating BEP23.53%
Considered for the year 2013-14 which is

optimum year of operation
Cash BEP 21.37%

GP Margin
81.09%
Considered for the year 2013-14 which is

optimum year of operation
Loan Life
Ratio LLR
LLR 1.37
Almost in line with the Benchmark rate.
Bench Mark 1.40
55
56

Ratio analysis
2009-10
(Oct'09
S.
to Sept
NO
RATIO
10)
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
EBIDTA Margin
23.97%
38.68%
70.78%
77.78%
81.09%
77.52%
73.23%
68.08%
OPBDT
220.83
109.45
49.52%
15.60%
41.32%
55.25%
53.00%
50.25%
Net Profit Margin
113.69
(PAT / Gross T.O.)
54.56%
10.15%
31.79%
43.51%
41.69%
39.46%
37.09%
1.40
1.47
1.51
1.48
1.40
1.41
1.40
1.38
0.18
0.44
1.28
2.13
3.14
3.16
3.19
3.28
Current Ratio
(Including Bank
borrowings in current
3
Liablities)
Interest Coverage
Ratio
Fixed Assets
#DIV/0
Coverage Ratio
0.55
0.42
0.43
0.55
0.84
1.09
1.91
Debt Equity Ratio
1.64
2.21
1.81
1.15
0.68
0.43
0.20
Earning Per Share
(17.80)
(4.49)
1.18
4.85
8.16
7.81
7.40
6.95
Yearly D.S.C.R.
#DIV/0!
(1.79)
1.00
1.12
1.67
2.95
2.52
2.19
Average D.S.C.R.(10
9
years)
1.44
Average Adjusted
10
DSCR (7 years)
1.31
11
Return on Capital
17.04%
57

Employed -Minimum
Internal Rate of
14.73%
12
Return
13
Cost of Capital
6.94%
Gap between IRR &
7.78%
14
COC
15
Loan Life Ratio
1.37
16
Operating BEP
Loss
Loss
65.26%
35.10%
23.53%
24.74%
26.38%
27.88%
17
Cash BEP
Loss
Loss
58.96%
31.85%
21.37%
22.53%
24.09%
25.51%
7.79
9.53
5.96
3.63
2.53
2.52
2.52
2.52
(Inventory+receivable
18
s)/sales
Safeguards provided in the scheme
All Terms loans to have first pari-passu charge on fixed assets and second pari-passu charge on
current assets of the Company.
All working capital borrowings to have first pari-passu charge on current assets and second paripassu charge on fixed assets of the Company
WCTL and FITL will be secured by Ist pari-passu charge on current and fixed assets of the
Company
Promoters to bring contribution of Rs. 404.07 lacs (15% of sacrifices) towards proposed
restructuring scheme. In addition they would be infusing additional capital through a strategic
investor which will ensure the much needed financial and managerial support.
The company shall raise its authorized share capital to Rs 100 crores so that in the event of any
or all lenders deciding to convert the OCCRPS into equity there are no legal constraints.
Appointment of concurrent auditor for periodical monitoring of the Account in terms of CDR
guidelines.
58
The collateral security shall be available to the lenders to secure their WCTL by way of first paripassu charge and to secure other debt by way of second pari-passu charge.
The proposed new promoters shall extend their personal guarantee. They shall also pledge 51%
of the share capital of the company or 100% of their shareholding in favor of lenders, whichever
is low.
Company to open a Trust & Retention Account (TRA) and route all its cash flows through the
account to ensure funds utilization as per the scheme.
Formation of the Monitoring Committee (MC).
Debt servicing has been restructured to provide an Adjusted DSCR of 1.31 providing sufficient
cushion against variability in earnings.
59

: Learnings and Outcomes
The following have been our learning from the above project:
Whenever there is an economic crisis, the rehabilitation of the financial sector is a first order
priority - macroeconomic stability is critical.
The process of CDR followed by a bank and the important factors that have to be considered
before initiating for the restructuring.
Determining of projected financial statements based on key assumptions.
The various guidelines that are mandatory for CDR.
Analysis of viability ratios and the financial statements.
We have also learned the working of CDR Mechanism Cell in India
We have also learned the International Norms of CDR followed in various countries.
60

References
Decentralized Creditor-Led Corporate Restructuring Cross-CountryExperience, Marinela E.

Dado and Daniela Klingebiel
Corporate Debt Restructuring in Southeast Asia, Country Panel IV, Harvard Asia Business
Conference, Feb. 2-3, 2001
Corporate Insolvency & Debt Restructuring - Examining the value of Voluntary Administration
Informal Work Outs for Corporate Debt Restructuring in Thailand, Mr. Tumnong Dasri, Bank
of Thailand, Thailand, The Second Forum for Asian Insolvency Reform (FAIR), Bangkok,
Thailand 16 17 December 2002
Financial and Corporate Restructuring in South Korea, Bank of Japan Research Papers, June
20, 2003, Hiroshi Akama, Kunihisa Noro, Hiroko Tada
Managing Corporate Distress -- Lessons from Asia, Michael Pomerleano, Lead Financial
Specialist, Financial Sector Development Department, The World Bank October 19, 2000
Framework for Corporate Debt Restructuring in Thailand, The Board of Trade of Thailand
Corporate Debt Restructuring and Public Financial Institutions in Japan -Do GovernmentAffiliated Financial Institutions Soften Budget Constraints?
Approaches to Corporate Debt Restructuring in the Wake of Financial Crises, Thomas Laryea
Ministry of Justice of Thailand, The Second Forum for Asian Insolvency Reform (FAIR),
visited the site on 18th August 2010 at 2140 hrs.
http://cdrindia.org/downloads/readings/CDR%20in%20Thailand-chairman's%20speech.pdf
Master Circular Disclosure Norm for Financial Institution - 1st July 2009, visited on 22nd
August 2010 at 1256hrs
http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=5153
Special Regulatory Relaxations for Restructuring - June 30th 2009, visited on 23rd August 2010
1424hrs
61

http://rbidocs.rbi.org.in/rdocs/Content/PDFs/74MCIR220710_8.pdf
Prudential Guidelines on restructuring of advances April 17th 2009 RBI, visited on August
23th 2010 at 1449hrs
http://cdrindia.org/downloads/RBI%20Cirular%20dated%20April%2017%202009.pdf
Annexures
1. Profit And Loss account

April07
Particulars
2003-04
2004-05
2005-06
2006-07
2008-09
to Sept -08
Net Income
2,587.85
2,761.03
2,887.98
3,578.91
5,658.09
3,075.17
2,115.12
2,273.70
2,372.07
2,035.61
2,547.48
(4,239.43)
Interest
1,214.52
1,427.71
1,464.39
1,656.13
4,046.44
2,551.47
Depreciation
146.29
76.93
92.79
87.93
213.96
66.35
(Loss)
754.31
769.06
814.89
291.55
(1,712.92)
(1727.71)
Non operating
Non operating exp
(930.00)
(287.78)
5,129.54
Profit before Tax
754.31
769.06
814.89
(638.45)
(2,000.70)
(6,857.25)
Tax
288.10
313.89
323.82
16.71
114.63
2.78
Profit after Tax
501.11
534.72
516.73
(656.00)
(1,918.07)
(6,860.03)
EBIDTA
Operating Profit/
Incomes
62
Net Cash Accruals

629.95
571.83
596.69
362.35
(1,514.96)
(1,664.14)
PBIDT to NI (%)
81.73%
82.35%
82.14%
56.88%
45.02%
28.95%
OP to NI (%)
29.15%
27.85%
28.22%
-17.84%
-35.36%
-222.99%
NP to NI (%)
19.36%
19.37%
17.89%
-18.33%
-33.90%
-223.08%
Interest Coverage
1.62
1.54
1.56
1.18
0.58
0.32
2. Projected Cash Flow Statement
200910(01.
04.10-
Particulars
30.09.1 2010-
2011-
2012-
2013-
2014-
2015-
2016-
0)
11
12
13
14
15
16
17
(Proje
(Proje
(Proje
(Proje
(Proje
(Proje
(Proje
(Proje
cted)
cted)
cted)
cted)
cted)
cted)
cted)
cted)
(504.2
(652.0
1,087.8
1,555.7
1,569.0
1,576.6
8)
9)
66.59
210.69
404.07
600.00
250.00
250.00
195.93
(1,037.
(1,037.
(1,037.
(1,037.
Cash Inflows
Cash Accruals
Increase / Decrease in
share capital
CRPS
46)
46)
46)
46)
(0.00)
1,664.
share premium etc.
Working Capital
63

14
Term Loan
(129.3
(161.6
(193.9
0.00
(32.32)
(48.49)
(80.81)
0)
2)
4)
(166.6
(749.9
(749.9
6)
6)
6)
(133.3
(222.3
(355.7
(444.6
(533.5
New Term Loan
FITL
809.85
856.73
WCTL
(88.93)
9)
1)
0)
3)
5)
9)
(93.77)
(99.58)
7.92
(1,202.
(659.0
(353.7
(189.9
75)
6)
5)
8)
1,467.5 1,116.
(724.1
(924.4
(988.8
93
5)
7)
1)
33.25
(74.69)
6)
Unsecured Loans
Current Liabilities
(149.0
232.58
Provisions
Total Inflows
525.34
(188.3
Cash Outflows
Gross Block
capital WIP
Investments
64

3,611.2
Assets on hire
(265.0
Repossessed Assets
(1,207.
(764.6
306.37
296.94
12)
7)
3)
46.65
10.22
(32.74)
49.49
(50.00)
Trade Bills purchased
Bank Balance(with
(553.2
(105.0
(225.0
scheduled bank)
0)
0)
0)
(1,150.
Loans & Advances
00)
(75.00)
(534.2
747.05
5)
499.94
13.73
(500.0
(200.0
(300.0
0)
0)
0)
1,568.0 1,100.
(727.0
(939.9
(1,001.
(105.0
(225.0
Total Outflows
06
9)
3)
44)
(50.00)
0)
0)
Opening Balance
125.75
25.25
42.12
45.06
60.52
73.15
156.41
186.72
(100.4
Cash
9)
16.87
2.94
15.46
12.63
83.25
30.31
36.64
Closing Balance
25.25
42.12
45.06
60.52
73.15
156.41
186.72
223.36
Other Recievables
65

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Project Report

Corporate Debt Restructuring

Corporate Debt Restructuring

Corporate Debt Restructuring

Chapter 2 Sources of Data

Chapter 3 Method of Research 6

Chapter 5 Understanding CDR 10

Debt Recovery Process 10

Difficult recovery process

Present Status of CDR cases

Prudential and Accounting Issues

Chapter 6 CDR Mechanism in India

CDR Standing Forum

CDR Empowered Group

Corporate Debt Restructuring

Chapter 7 Financial Viability Parameters20

Debt Service Coverage Ratio

Gap between Internal Rate of Return and Cost of Capital 21

Other Financial Parameters

Gross Profit Margin

Loan Life Ratio 23

Adverse Effect of reviewing accounting policy 24

Effect of failure of companys effort for a slump sale of COMAPNY Xs business25

Demand and Supply Analysis

Future Market Demand and Supply

Working Capital Lenders (CDR)29

Corporate Debt Restructuring

Total FITL Calculation 34

Chapter 9 : Learnings and Outcomes

Corporate Debt Restructuring

Corporate Debt Restructuring

To understand the concept of Corporate Debt Restructuring(CDR)

involved while doing CDR of an organization.

What is Corporate Debt Restructuring?

Corporate Debt Restructuring

Characteristics of Corporate Debt Restructuring

Increasing the tenure of moratorium of Loan installments.

Approaches to Corporate Debt Restructuring

Corporate Debt Restructuring

Corporate Debt Restructuring

Corporate Debt Restructuring

Concept on CDR and relevance to insolvency

Corporate Debt Restructuring

Basic principles of Corporate Debt Restructuring

First principle: Where a debtor is found to be in financial difficulties, all relevant

Corporate Debt Restructuring

Corporate Debt Restructuring

Avoid Business Bankruptcy

Satisfy creditors based on what your business can afford

Corporate Debt Restructuring

Spend more time creating revenue and optimizing your business

Keep doors open and retain management control

Avoid unnecessary legal fees

Balance budget and manage cash flow

Preserve vendor relations and keep vital supply lines open

Rebuild credit and credibility

Corporate Debt Restructuring: The Indian Mechanism

Corporate Debt Restructuring

Corporate Debt Restructuring

Corporate Debt Restructuring

Return on Capital Employed (ROCE),

Corporate Debt Restructuring

funds to related/unrelated fields with/without lenders' permission.