Corporate Debt Restructuring (CDR) Mechanism in India
The idea of Corporate Debt Restructuring (CDR) was acquainted with the India when in the year 2001, the Reserve Bank of India (RBI) thought of specific rules to be trailed by banks and other money related organizations. The RBI expressed that the idea of CDR is a non-statutory and intentional procedure where if 75% of the lenders (by esteem) choose to help the organization, the other 25% of the lenders will likewise have the consent to help the organization through the procedure of CDR. The CDR is accessible just to those organizations which have numerous financial balances and has assumed acknowledgment from different loan specialists. Additionally, the exceptional measure of obligation of the considerable number of banks and loan specialists ought to be 100 million or above in total. It covers all classifications of advantages ordered by the RBI as far as prudential resources grouping principles. The significant advantage to a lender has from rebuilding obligations is that they can decrease the non-performing resources of an organization through it.
Key Changes required in the Indian CDR Mechanism:
- The entire CDR mechanism requires an overhaul especially in the wake of the outbreak of the coronavirus pandemic.
- The Lenders need to be given more assurance for the speedy recovery of the amount.
- The potential of the organization for their exports requires utmost attention.
- Need for the development of a robust system for the smooth functioning of the CDR mechanism.
- The RBI has to increase its role in the entire CDR process
- The Government of India (GoI) has to come up with a specific set of Rules & Regulations
- Strengthening the Insolvency & Bankruptcy Code 2016
The Government, the RBI, Banks and the Non-Banking Financial Corporations (NBFCs) should make their best efforts to pull out the organization from the debt trap and help in its revival and can definitely use the CDR Mechanism for the rescue of the debt ridden organisations.
While the CDR Mechanism has demonstrated valuable by and large, there is still a ton of degree for improving the component. The revival of the organization is far better than closing an organization. Having said that, the laws, rules and regulations should be made stringent enough to prosecute willful defaulters.
Authored By: Adv. Anant Sharma