Jun 07, 2013 04:29 PM IST | Source: PTI

FinMin asks banks to have independent CDR oversight panel

The proposal comes amidst allegations of banks using corporate debt restructuring (CDR) mechanism - under which the repayment tenor of a loan is delayed - to take care of a borrower's temporary needs in times of stress.

FinMin asks banks to have independent CDR oversight panel

To restrict the use of loan restructuring mechanism only to deserving cases, the Finance Ministry today asked bankers to have an independent oversight committee that will vet the CDR applications.

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Financial Services Secretary Rajiv Takru asked banks to have the committee consisting of an expert from the legal field, investigative agencies and a finance professional, to make sure that there will not be any scope for allegations.

"An independent oversight mechanism which will not have any government representative or any serving banker, but some experts who can scrutinise from the correctness point of view whether the case referred is genuine," Takru told reporters on the sidelines of the Skoch summit here.

The proposal comes amidst allegations of banks using corporate debt restructuring (CDR) mechanism - under which the repayment tenor of a loan is delayed - to take care of a borrower's temporary needs in times of stress.

CDR cases have more than doubled in the past fiscal and are set to increase further this fiscal. According to the CDR cell, as on March 31, 2013, loans worth Rs 2,29,013 crore, or 401 companies' loans, were restructured, which is more than double the amount from FY12.

Last week, the RBI had increased provisioning for the recast loans massively and also made loan recasts tougher by increasing promoters contribution.

Under the new rules, from June 1, banks must set aside provisioning for five per cent of the value of a loan that is newly restructured, from two per cent previously.

Under the newly revised norms, loans classified as sub-standard would attract a provision of 15 per cent, against the current 10 percent. For unsecured loans classified as sub-standard assets, an additional 10 per cent provision would have to be made over the current 15 per cent.

Thus, the total provisioning for sub-standard unsecured loans would now be 25 per cent, against 20 per cent earlier.

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