'Firm brass must take pay cut before debt recast'

HT Correspondent

Mumbai, Aug. 11 -- Promoters of those companies, which are seeking debt restructuring from banks should make some sacrifices such as salary cuts for top management, said deputy governor of RBI KC Chakrabarty.

"Have you ever come across a company promoter, who has sought debt restructuring, take public transport?" Chakrabarty speaking at a conference on corporate debt restructuring said. "Have salaries of their senior managers' come down by 40%? Are they ready to sacrifice? Don't give restructuring before that."

The corporate debt restructuring (CDR) process followed by banks is for privileged borrowers and is not being conducted in an objective manner, Chakrabarty said. Loan restructuring is the process of of diluting the original terms of loans which include lower interest rate or extension of tenure. Due to economic slowdown, banks are witnessing increase in the cases of loan restructuring because of inability of timely repayments by the companies.

In 2011-12, Indian banks sought to restructure a record $12 billion in corporate loans through the CDR, an RBI-approved consortium of lenders - an increase of 156% on the year before.

"Restructuring has not been done in an objective manner, it is heavily biased in favour of public sector banks," he said. "It has substantial bias towards more privileged borrowers vis a vis small borrowers."

Published by HT Syndication with permission from Yahoo HT.