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Prompt Corrective Action is a system of RBI under which it can initiate a corrective action in case of a bank which is found to be having low capital adequacy or high Non-performing Assets. READ TABEL https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10921&Mode=0 PCA Tabel+ actions https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10921&Mode=0 CDR: Corporate Debt Restructuring (CDR) Meaning Corporate Debt Restructuring (“CDR”) mechanism is a voluntary non statutory mechanism under which financial institutions and banks come together to restructure the debt of companies facing financial difficulties due to internal or external factors, in order to provide timely support to such companies. http://www.blog.sanasecurities.com/what-is-corporate-debt-restructuring-cdr/ http://www.cdrindia.org/downloads/RBI-CDR-Circular-Nov05.pdf (cdr rbi) (NOT IMP) WHAT ALL RATIOS TO BE CHECKED WHILE RESTRUCTURING : ã Return on Capital Employed (ROCE), ã Debt Service Coverage Ratio (DSCR), ã Gap between the Internal Rate of Return (IRR) and the Cost of Fund (CoF), ã Extent of sacrifice. Eligibility: 1) The scheme will not apply to accounts involving only one financial institution or one bank. The CDR mechanism will cover only multiple banking accounts / syndication / consortium accounts of corporate borrowers with outstanding fund-based and non-fund based exposure of Rs.10 crore and above by banks and institutions. 2) 2 The Category 1 CDR system will be applicable only to accounts classified as 'standard' and 'sub-standard'. There may be a situation where a small portion of debt by a bank might be classified as doubtful. In that situation, if the account has been classified as ‘standard’/ ‘substandard’ in the books of at least 90% of creditors (by value), the same would be treated as standard / substandard, only for the purpose of judging the account as eligible for CDR, in the books of the remaining 10% of creditors 3) While corporates indulging in frauds and malfeasance even in a single bank will continue to remain ineligible for restructuring under CDR mechanism as hitherto, the Core group may review the reasons for classification of the borrower as wilful defaulter specially in old cases where the manner of classification of a borrower as a wilful defaulter was not transparent and satisfy itself that the borrower is in a position to rectify the wilful default provided he is granted an opportunity under the CDR mechanism. Such exceptional cases may be admitted for restructuring with the approval of the Core Group only. The Core Group may ensure that cases involving frauds or diversion of funds with malafide intent are not covered 4 The accounts where recovery suits have been filed by the creditors against the company, may be eligible for consideration under the CDR system provided, the initiative to resolve the case under the CDR system is taken by at least 75% of the creditors (by value) and 60% of creditors (by number). 4.1.5.BIFR cases are not eligible for restructuring under the CDR system. However, large value BIFR cases, may be eligible for restructuring under the CDR system if specifically recommended by the CDR Core Group. S4A : Definition and Points to remember 1. For an account to be eligible for restructuring under the S4A Scheme, the total loans by all institutional lenders in the account should exceed Rs 500 crore (including rupee loans, foreign currency loans/external commercial borrowings). 2. The lending bank should hire an independent agency to evaluate how much of the debt is ‘sustainable’. 3. The project should have started its commercial operations and there should be cash flows from the project. 4. The project allows banks to take equity participation in the stressed project. 5. Test of Sustainability: Major feature of the scheme is that it envisages determination of the sustainable debt level for a stressed borrower. Loans will be divided into sustainable and unsustainable components. A Techno-economic viability (TEV) study by the bank/ Joint Lenders Forum/consortium of lenders should assess the debt level as sustainable. A sustainable debt is the one where the principal value of all debts owed to institutional lenders can be repaid if the future cash flows (return from the project) remain at their current level. For the scheme to apply, sustainable debt should not be less than 50 percent of all debts. 6. The scheme allows banks to rework stressed loans under the oversight of an external agency. This ensures transparency at the same time protecting bankers from undue scrutiny by investigative agencies. 7. The scheme involves substantial write-downs and/or making large provisions. Source: http://www.indianeconomy.net/splclassroom/351/what-is-scheme-for-sustainable-structuring-of-stressed-assets-s4a/
