CDR cases to rise in FY13 due to high pressure: Vijaya Bank

In an interview to CNBC-TV18, chairman of Vijaya Bank HS Upendra Kamath says that the high pressure on the system could mean a higher number of corporate debt restructuring (CDR) cases in FY13.

“The whole system is under stress and these problems have a tendency to surface with a lag effect, therefore, whatever references thus far made in my personal view are bound to go up,” he explained. An important meeting took place between bankers yesterday to discuss the CDR issue, however no final decision was taken yet. “There will be a couple of more sittings before decisions finally get firmed up and thereafter it will be taken forward for implementation,” said Kamath. Kamath says there were four issues discussed in yesterday’s meeting, which were about conversion of debt into cumulative convertible preference shares or equity, about obtaining personal guarantee of promoters, the contribution to be brought in by promoters and the change in management. Below is an edited transcript of his interview with Mitali Mukherjee and Reema Tendulkar. Also watch the accompanying video.
 
Q: Could you start off by walking us through what exactly transpired at the meeting and how many of the suggestions that the bankers had with regards to changes in this entire corporate debt restructuring (CDR) process were taken on board? A: In yesterday’s discussion, some of the issues got discussed threadbare. Some of them was about conversion of debt into cumulative convertible preference shares (CCPS) or equity. Obtaining of personal guarantee of the promoters was the second issue which I understand was discussed in detail. The third issue which seems to have got discussed is the contribution to be brought in by the promoters’ vis-à-vis the sacrifice which the banks need to eventually undertake as a result of restructuring of debt. The fourth issue which was discussed was the change in management under certain circumstances. These are the four major issues which were discussed in great detail in addition to some of the other relevant issues. My sense of the whole discussion is that apart from discussing these issues threadbare, a final decision has not been arrived as yet. The views of various participating banks were taken on board and a final decision is yet to be arrived. Q: Just with regards to these specific suggestions, both in terms of hiking promoter contribution, personal promoter guarantee etc, was there any discussion regarding what happens to some of your NPAs? Not all companies go down the CDR route, but on many bad assets banks are facing problems with regards to the fact that promoters aren’t putting in as much as may be required. Did the bankers make any suggestions on NPAs and how to approach those kind of bad assets? A: Non-CDR issues were not discussed. It was only the issues pertaining to the restructuring under the CDR forum that was discussed. Individual non-CDR cases are being handled by the banks at individual banks level and individual banks do decide and they have freedom to decide what needs to be done in respect of those accounts. Q: Any proposal to apply these new guidelines on a retrospective basis? A: No. Those issues don’t seem to have been discussed because whatever has already been done and implemented stands implemented. I am sure whatever decisions finally emerge will be with prospective effect only. Q: How soon before we will hear the final guidelines on the new CDR mechanism because we have already seen CDR becoming an increasing problem for banks?
 
A: I think there are bound to be some more sittings on this issue. These are issues which are very important, which are very sensitive to the whole system and I don’t think final decisions can be arrived at in one sitting. In my personal view, there will be a couple of more sittings before decisions finally get firmed up and thereafter it will be taken forward for implementation. Q: What is the stance of the Finance Ministry at this point with specific regard to personal promoter guarantees or proportion that promoter should be paying in? Is the finance ministry on board with the suggestions of the bankers? A: I would say that CDR is a forum of bankers and therefore whatever final decisions will be taken will be as a result of collective wisdom of the bankers’ community per se. I do not think anything would get directed from elsewhere, there could be consultations happening. Q: What is your own sense of what kind of figure we may be dealing with for FY13 or even the first part of FY13 in terms of CDRs? A: CDR cases, references and finally implemented cases are bound to go up. The whole system is under stress and these problems have a tendency to surface with a lag effect. Therefore, whatever references thus far made in my personal view are bound to go up. Probably the discussions that have taken place yesterday is a precursor to what is going to follow. There is a feeling that the promoters, at least some of them, are trying to get away with softer terms, particularly with regard to the pricing concessions that finally get cleared at the CDR forum, which are strictly not in the interest of the banking community. It is this feeling which has led the bankers to come together and discuss the issues which I dealt with in my opening remarks.