A PRESENTATION BY ASHOK GUPTA, SVP, IDBI CAPITAL

CDR System CDR is a voluntary non-statutory mechanism based on DCA and ICA having a principle of approvals by super- majority. It covers only multiple accounts/ syndication/ consortium of accounts with outstanding exposure of Rs.10 crore and above by Banks/ Institutions. BIFR/ DRT and other suit-filed cases are eligible for restructuring under CDR.

CDR System - Structure & Legal Basis A three-tier structure: CDR Standing Forum CDR Empowered Group CDR Cell Legal basis/ Discipline in the CDR System is provided by the Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement (ICA).

CDR Membership Presently, there are 51 CDR Members under the CDR Forum comprising of the following : Public Sector Banks – 26 Private Sector Banks – 14 Financial Institutions/ Public Sector Insurance Companies - 11

CDR Standing Forum Representative body of all CDR member FIs, Banks Self empowered body Comprises Chairman/ CMDs of IDBI Bank, State Bank of India (SBI), ICICI Bank, Punjab National Bank (PNB), Bank of India (BOI), Bank of Baroda (BOB), Chairman of Indian Banks Association (IBA), and CMDs of all other member FIs/ Banks Lays down policies and guidelines Monitors progress of CDR

CDR Core Group Small group carved out of Standing Forum Comprises Chairman/ CMDs of IDBI, SBI, ICICI Bank, PNB, BOI, BOB and Chairman, IBA Assists Standing Forum in formulating policies Addresses operational difficulties of CDR Empowered Group Lays down guidelines within the broad framework of RBI Guidelines

CDR Empowered Group ED level representatives of IDBI, SBI, ICICI Bank as standing members Senior Executives of FIs, banks with exposure in concerned company Voting in proportion to exposure/ no. Approval by super-majority (75% by value & 60% by number) Executives attending EG meetings should have general authority from their Boards to take decisions

CDR Empowered Group (contd.) Two-stage process to facilitate decision making Flash Report for exchange of views and in- principle clearance Viability / rehabilitation potential to be established Final Report within 60/ 90 days Opportunity to all lenders to express views Detailed discussion before approval

CDR Cell Assisting CDR Standing Forum/ Core Group/ Empowered Group Making initial scrutiny of proposals Placing proposals for consideration of EG Housed in IDBI Staff deputed from Core Group member banks/ FIs May take outside professional help Contribution CG Member banks - Rs.50 lakh each Other CDR members - Rs. 5 lakh each

CDR - Salient Features Eligibility Criteria Corporates with Multiple Banking / Syndication/ Consortium (Min. 2 lenders) Aggregate debt outstanding Rs 10 crore and above (incl. NFB) Cases of fraud and misfeasance ineligible. Wilful default cases may be considered if permitted by CG Standard & Sub-standard accounts under CDR Category-I Doubtful accounts under CDR Category-II

CDR - Salient Features Eligibility Criteria (Contd.) DRT and large value BIFR cases (>Rs. 15 crore) also eligible Clearance of Core Group mandatory for BIFR/ Wilful Default cases Criteria laid down by Core Group for BIFR cases BIFR approval of DRS necessary before implementation

Reference to CDR System By any one or more of the creditors having minimum 20% share in either Working Capital or Term Loan or both By concerned corporate if supported by a Bank or FI having stake as above

Work Process & Timeline Final approval by EG within 60 days except for large, complex cases where 90 days allowed Extension up to 180 days (maximum) for exceptional cases by Core Group Decision by super-majority Super-majority decision binding on dissenting CDR members

Work Process and Timeline (contd.) Initial scrutiny before submitting Flash – maximum 30 days Approval of Flash - zero date Approval of Final Package - maximum 60/ 90 days from Flash approval date Issue of LOA - within 15 days of approval of Final Package Implementation of package by all – within 120 days from LOA

Financial Parameters Viability Parameters- Benchmarks - DSCR :1 (Avg. Adj. DSCR in first 5 years) - Return on Capital Employed G sec + 2% - Gap between IRR and cost of capital – at least 1% - Break-even analysis – in line with industry - Industry indicators – comparison with EBIDTA, price realization, etc - Loan life ratio- 1.4:1

Monitoring Mechanism Effective implementation is the key to success of the package Adherence to timelines Compliances By promoters & lenders Operational hurdles New developments/ environmental challenges Capex / debt servicing issues Review of performance vis-à-vis projections

Monitoring Mechanism (contd.) Monitoring Institution Usually Referring lender or the Lead lender Monitoring Committee Three or more lenders (TL, WC, minority). CDR Cell and Borrower as invitee. Concurrent Auditor / LE / SA Independent expert agency Terms of reference on case to case basis Performance & variance analysis Concurrent audit / TRA structure and monitoring

Monitoring Committee Role and Functions Working out restructuring package in large, complicated cases from Flash stage Monitoring sanction, implementation as per timelines Ensuring compliance by promoters, company of various stipulations Ensuring security creation and sharing of security between term lenders and working capital banks

Overall Position of References (as on March 31, 2014) Sr. No. Proposals No. of cases Total Debt (Rs. Crore) 1Referred Approved Closed/ Rejected Under Process

Advantages of CDR to the Company Approval to package by Super Majority is binding on all CDR lenders. Availability of cash flows on account of deferment of principal repayment/ funding of interest, which helps the Company in focusing on its operations and come out of the stress. Irregular portion in CC/ devolved LCs may also get converted into WCTL to be repaid over a period.

Advantages to the Company (contd.)  Reduction in interest rate in WC & TL helps improve the profit margin for the Company. However, interest re-set (after 3 years for TL & 1 year for WC) would be there.  Conversion of a part of unsustainable debt into equity/ equity related instruments to improve the debt servicing/ interest servicing capability of the Company, if acceptable to lenders.

Advantages to the Company (contd.)  Retention/ Restoration of ‘Standard’ Asset Classification by the lenders, in most cases, helps the Company by way of more positive approach from the lenders including grant of any additional funds (Working Capital and/or Term Loan), if necessary.  Monitoring Institution (MI) & Monitoring Committee (MC) play an important role and therefore, Company may interact mainly with MI & MC members instead of a large no. of lenders (ranging from 10 to 30 in many cases).

Advantages to the Company (contd.) After admission of the case itself under CDR System, ‘Standstill Clause’ & ‘Holding on Operations’ are available to the Company which helps them arrest any further deterioration. There is time-bound approach under CDR. Package gets approved within 60/90 days and implementation within 120 days of the approval.

Advantages of CDR to the Lenders Lenders can retain/ restore ‘Standard Asset’ classification, if not repeated restructuring. Atleast 25% of lenders’ sacrifices has to be brought by the Promoter. Additional security of pledge of Promoters’ shares & Personal Guarantee of Promoters. Lenders can convert part of debt into equity whereby provision requirement will reduce. Further, they can possibly enjoy the upside in equity in future.

Advantages to the Lenders (Contd.) Provisioning on account of sacrifice is usually lesser than it would have been required to make upon account being downgraded to Substandard/ Doubtful. Further, provision requirement in CDR case gets reduced each year whereas it increases each year in case of NPA accounts.

Advantages to the Lenders (Contd.) Lenders may agree for the package only if viability is established. For this purpose, they can get TEV Study carried out to satisfy themselves regarding the viability. Lenders can stipulate to bring back investments in subsidiary companies, if any. Sale of idle or non-core assets/ unprofitable units can be part of the package to reduce the debt.

Advantages to the Lenders (Contd.) There is better monitoring in CDR cases by way of MI & MC being there. Further, usually Concurrent Auditor/ Lenders’ Engineer is appointed to have a control on Company’s operations/ accounts. TRA is stipulated to capture entire cash flows and also ensure better financial discipline in the Company.

Thank You