Statutory dues, secured creditors, then unsecured creditors and finally if anything‘s left – shareholders! That‘s the traditional credit hierarchy – and it gives unsecured creditors little or no say in a recovery process.
Last week 19 banks paid RBI almost Rs 2 crore in penalties for breaking the rules while selling derivative products- remember Rajshree Sugars, Sundaram Multi-pap and dozens of companies alleging that they were mis-sold complex derivative products by banks.
It is touted as India's most successful Debt Restructuring mechanism, but recent events beg the question – Does the CDR mechanism need reinventing?