PUNJAB NATIONAL BANK

RISK MANAGEMENT DIVISION

(CREDIT POLICY SECTION)

L&A

HO:7, Bhikhaiji Cama Place, New Delhi-110066.

Cir. No. 66/2008

CPY-471
May 10, 2008

TO ALL OFFICES

In supersession of L&A Circulars

No.
59
152

Date
12.05.2005
28.09.2007

No.
19

Date
01.03.2007

LOANS & ADVANCES CIRCULAR NO. 66

Policy for restructuring of debts
Bank has put in place a transparent mechanism for restructuring of debts of
potentially viable entities facing temporary problems due to factors beyond their
control which aims at preserving viable units that are affected by certain internal
and external factors and minimize the losses to the creditors and other stake
holders by way of providing timely support through an orderly and coordinated
restructuring programme. The different mechanisms presently available for
restructuring of debt are as under.
1. Rehabilitation scheme sanctioned under the aegis of BIFR
2. Corporate Debt Restructuring
3. Restructuring under Debt Restructuring Mechanism for Small and
Medium Enterprises
4. Policy for Restructuring of Debts
2.
The restructuring policy is guiding light for restructuring of all types of
loans other than accounts considered for restructuring under BIFR, CDR and
DRM for SMEs accounts. Detailed guidelines in this regard have been circulated
vide L&A Circular No. 19 dated 1.3.2007.
The guidelines given in the policy of restructuring of debts have been reviewed in
the light of implementation of 3 tier structure consisting of Branch Office, Circle
Office and Head Office to avoid any scope of ambiguity and smooth
implementation thereof. The revised guidelines in this regard are consolidated
and available in the Annexure.
All concerned are advised to note the above guidelines for compliance.

(S. B. MALIK)
DY. GENERAL MANAGER
INDEX : RESTRUCTURING OF LOAN ACCOUNTS.

Annexure

POLICY FOR RESTRUCTURING OF DEBTS

1.

OBJECTIVE

To put in place a transparent mechanism for restructuring of debts of potentially

viable entities facing temporary problems due to factors beyond their control. In
particular, the policy framework will aim at preserving viable units that are
affected by certain internal and external factors and minimize the losses to the
creditors and other stake holders by way of providing timely support through an
orderly and coordinated restructuring programme.
2.

ELIGIBILITY CRITERIA

These guidelines would be applicable to all the viable or potentially viable

business entities except those listed below:
a.
b.

c.
d.
e.

f.

Business entities indulging in fraud and malfeasance.

Accounts classified as willful defaulters. However the bank 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 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. Such exceptional cases may be admitted for
restructuring after approval by CMD.
Accounts where recovery suits have been filed.
Accounts where action under SARFAESI Act has been initiated.
Accounts where reference has been made to BIFR. In such accounts
restructuring shall be done in terms of the scheme of rehabilitation
approved by the BIFR.
Accounts classified as loss asset. Such assets can be considered for
restructuring after approval by Circle Head and above only.

CDR mechanism & DRM for SMEs are already in place for accounts having
total exposure of more than Rs.10 crore financed under multiple
banking/consortium arrangement from the system and SMEs accounts
respectively. These should be the preferred mechanisms for restructuring of
debts in eligible accounts.
However, need may arise for the bank to
reschedule/restructure such accounts outside CDR/DRM for SMEs also due
to various reasons such as time constraint, lack of consensus/majority
amongst the lenders etc., in which case restructuring may be considered
within the framework of this policy.

3.

IDENTIFICATION OF ACCOUNTS

The accounts under stress can be classified into four different categories with
proposed action as under:
a)

Accounts where management is reliable and strong and the project is

strong i.e. technically feasible and economically viable Restructuring
of debts.

b)

Accounts where management is weak and/or unreliable and the

project is strong Action under SARFAESI/sale of assets/change of
management.

c)

Accounts where management is strong and/or reliable but the project

is weak Diversification/modernization/expansion of activities.

d)

Accounts where management is weak and/or unreliable and the

project is also not strong OTS/action under SARFAESI.

4.

RESTRUCTURING PROCESS

Restructuring encompasses both financial restructuring and operational

restructuring. Financial Restructuring may include reschedulement of debt,
change in the rate of interest (which results in alteration in original terms of
agreement), waiver/funding of the interest accrued but not recovered, refund of
interest recovered, part waiver of the principal, debt equity swap or even debt
asset swap. Operational restructuring may include sale of non core assets or
even sale of non core businesses to reduce the debt level, modernization,
diversification, backward or forward integration or even a complete change in the
line of business. It could also include change in management or optimization of
the workforce. The objective of the operational restructuring, however, is
supplementary to financial restructuring. In financial restructuring the debt
service obligations are aligned to the cash flows whereas in operational
restructuring, the cash flows are enhanced to meet the debt service obligations.
Financial Restructuring comprises of alignment of the capital structure and debt
servicing obligations to the realistically assessed cash flows of the company.
The change in the capital structure may be necessitated by a high Debt Equity
Ratio making the service of the debt difficult.
Restructuring of debt or Financial Restructuring involves three basic steps:
a)

Timely identification of the problem

b)

Realistic assessment of the business potentials and cash flows

c)

1.

Aligning the capital structure and debt servicing obligations to realistically

projected cash flows
Timely identification of the problem

Identification of weakness in the very beginning i.e. at the time of the account
showing first signs of weakness is imperative. Each case is a unique case and the
strategy for its management has to be governed by its circumstances.
Assessment of the potential of revival may be done on the basis of a technoeconomic viability study. In order to capture early warning signals and initiate
remedial measures to avoid slippage to NPA category, bank has in place a system
of post-sanction follow-up which, interalia, covers submission of statement of
weak accounts and irregular accounts to the Controlling Offices. The job at
Controlling Offices should be to suggest/initiate corrective measures for
regularization. An illustrative list of such warning signals is as under.

Persistent irregularity in the TL or/and WC accounts.

Delay in submission of stock statement, other control returns, or financial
statements.
Frequent returning of cheques.
Frequent devolvement of DPG or LCs and non payment within a
reasonable period.
Frequent returning of bills.
Non payment of bills discounted or under collection.
Declining sales, net losses, erosion of TNW etc.
Non compliance of terms and conditions of sanction.

These warning signals help in identifying the potential NPA accounts and call for
the corrective measures. A system of early recognition coupled with timely and
adequate intervention has to form the focus of approach in dealing with these
stressed assets.
2.

Realistic assessment of the business

Restructuring plans should be built upon realistic future cash flows as optimistic
future cash flows may justify the rescheduling of debts and infusing fresh loans
but may not result in revival of the business entities and ultimately result in the
slippage of the account to NPA category. On the other hand a pessimistic view of
projections could lead to an otherwise viable project being labeled as unviable
and may force bank to settle the dues at a discounted price. In order to avoid
such instances, a comprehensive analysis should be carried out on the medium
to long term cash flows of the business entities while considering the
restructuring plan.

3.

Aligning the capital structure and debt servicing obligations to

realistically projected cash flows

Earning Before Interest, Depreciation, Tax and Amortisation (EBIDTA) is a

reasonable measure of cash flow. After deciding that the restructuring is feasible
and less costly than liquidation (or recovery through coercive measures) every
attempt should be made to align the companys debt service obligation to its
realistic cash flows. This involves forecasting the future cash flows and then
designing a debt servicing structure with appropriate instruments. Based on the
projected cash flows, it is possible to estimate the quantum of debt that can be
retained at a pre-determined rate. A more flexible approach needs to be taken
towards balance debt. The same may be converted into cheaper/zero coupon
debt/equity/pref. shares etc. or a combination thereof. Conversion into equity is
beneficial for the bank in the case of listed companies as the opportunity to
participate in the upturn is available with adequate opportunity for disposal of
the equity obtained.
The starting point for designing a restructuring package for a company is the
EBIDTA. Based on realistic projections of the units working levels, the EBIDTA
for the next 10-15 years needs to be assessed. RBI has prescribed different
repayment periods to various types of industries e.g. for SSI units the repayment
period cannot exceed 7 years whereas for large projects the same is 10 years. In
the case of infrastructure and core sector projects the same could go up to 15-25
years. In projects where there are no such restrictions, the productive life of the
fixed assets by way of their capacity to produce or by way of the obsolence factor
may be considered as the repayment period after building in a margin of say 2-3
years for likely slippages etc. The aggregate EBIDTA for this period is then
reduced by the amount of depreciation and amortisation for computing the
approximate amount of tax. The aggregate EBIDTA less tax gives the total
amount of cash flows available to us for utilization towards the interest and
principal. However, normally interest on WC enjoys priority over the TL interest
and instalments and therefore interest on WC needs to be deducted from this
amount so that the funds available towards payment of interest and principal of
TL are arrived at. After deducting the tax & WC interest, the funds available to
the term lenders is arrived at. The first test is to see that this amount is more
than the principal. If it is so, no waiver of principal may be required. This
amount decides the rate of interest that can be charged. There are various
elements that impinge on the rate of interest that should be charged to a
company while restructuring its debt e.g. the nature of factors that led to the
stress in the account (whether internal or external, company specific or industrywide etc), the nature of security available to the bank, past conduct of the
account, relationship of the bank with the company, its promoters and other
group companies etc. However, the bank expects a certain minimum return on
its loans. Therefore the rate of interest would generally be more than this
expected minimum rate of return. The rate of interest and the repayment
schedule is fixed based on this quantum and the cash flows available in each
year. To align the debt service obligation for each year the rate of interest and

instalments of the principal may be staggered by ballooning or otherwise

maintaining the yield at acceptable level, depending upon the cash flows and
merits of each case. The staggered interest rate and instalments may be
permitted within the overall repayment period by the Sanctioning Authority.
Each account is a unique case and the combination of the different modes
has to be built in based on the various factors like the cash flows, the debt
equity structure, the non core assets/ businesses that can be disposed off,
the segmental performance etc.
5.

VIABILITY CRITERIA

Any reference for restructuring should first be tested for viability. In order to
have uniformity in the assessment of viability, the following criteria may be
adopted:
Particulars
Minimum criteria
Min. average DSCR subject to annual
1.33:1
DSCR not going below 1:1
Period within which the unit should
7 years
become viable
Repayment period of all term loans
10 years
except projects in infrastruture and
core sector
Repayment period for FITL/ WCTL
Units in tiny and SSI sector
5 years
Units in medium and Large sector
7 years
Minimum Promoters Contribution of 10% of the long term requirement of
which at least 50% must come upfront
funds plus the monetary value of
sacrifices made by the lenders in tiny
sector and 20% in others
6.

TECHNO-ECONOMIC VIABILITY STUDY

Restructuring Cell already functioning at administrative offices for restructuring

under CDR and DRM for SMEs shall undertake techno-economic study of the
project. The Cells should comprise of atleast one Technical Officer and an officer
with credit background. However, if it is felt that necessary expertise is not
available, services of outside consultants may be utilized. The cost of such study
shall be borne by the borrower.
The viability criteria should broadly be ascertained on the basis of:
i)
ii)
iii)

Background of the unit

Experience of the promoters/management
Causes of sickness and steps taken, if any, for their removal

iv)
v)

The report should cover technical, economic, financial and

marketing aspects.
External factors influencing the industry.

Branches should refer the cases of restructuring to their Circle Offices, as the
case may be, for conducting the techno-economic studies for determining
viability. The Technical Cell at Circle Office after undertaking the study should
give their recommendations on possibility of revival and suggestions for
overcoming the weaknesses/problems.
After obtaining the viability report, the branches should prepare the
rehabilitation proposals as per the format available at Appendix-I covering the
following aspects in detail:
i)
ii)
iii)
iv)
v)

vi)

7.

Detailed viability report covering technical, economic, marketing and

financial aspects.
The projected/expected generations at the proposed/achievable plant
capacity that should be realistic under normal circumstances.
Details of financial contribution from the management for the
rehabilitation package.
Additional securities offered by the borrower
Latest position of the account alongwith the details of the security
available/charged to the bank for determining the irregularity in the
account for purpose of funding.
Latest financial position alongwith the audited annual accounts for the
last three years.
In case latest audited results are not available,
provisional Balance Sheet should be obtained and submitted.
DELEGATION OF LOANING POWERS

In order to ensure proper scrutiny and analysis of restructuring proposals, the

sanctioning powers shall vest with the controlling authority i.e. Circle Heads and
above only. However, the loaning powers for reschedulement of Term loan may be
exercised by the officers at various levels in terms of extant guidelines circulated
vide L&A Circular No. 57 dated 28.4.2008.
Restructuring of account within one year of first sanction/ enhancement in WC
or sanction of term loan shall be approved by next higher authority. Accordingly
a. No loaning powers for restructuring of loan assets shall be utilized at the
level of branch including the LCBs.
b. The powers for restructuring shall be exercised by the official not below
the level of Circle Heads upto the extent of their vested loaning powers.
For this purpose, the post restructuring exposure i.e. including additional
finance should be reckoned.

c. Restructuring of debt in any account within one year of first sanction or

enhancement in WC or sanction of term loan shall be exercised by the
next higher authority not below the level of Circle Heads. However, no
such restrictions shall apply on accounts sanctioned by ED/CMD.
POWERS FOR GRANTING VARIOUS RELIEF AND CONCESSIONS
SN

Waiver of penal
Interest
Waiver
of
processing charges
and upfront fees
Reduction in rate of
interest for existing
exposure below Rs.
2 lacs

I
II

III

Circle
Head in
the rank
of AGM

Circle
GM
Head in
the rank of
DGM
Full powers

VI
A
B

ED

CMD

4.75%
below
applicable rate

4.75%
below
applicable
rate
Upto
BPLR
minus
4%
Upto
BPLR
minus
4%

Full powers

3% below
applicable
rate

Reduction in rate of
interest for existing
exposure above Rs.
2 lacs
Reduction in rate of
interest
for
additional exposure

Upto BPLR

Units in tiny and

SSI sector
Units
in
other
sector

Upto 0%

4% below
applicable
rate

Upto BPLR
minus 1%
Upto BPLR-1.5% in SSI
and tiny units
Upto BPLR Upto BPLR
minus 1%
Upto BPLR minus 1.5%
in SSI and tiny units
Reduction in rate of interest on FITL

IV

Upto 2% below BPLR

4.25%
below
applicable
rate
Upto
BPLR
minus
2%
Upto
BPLR
minus
2%

Upto
3%
below
BPLR

Upto
BPLR
minus 3%
Upto
BPLR
minus 3%

Upto
4%
below
BPLR

Upto 5%
below
BPLR

Reduction in rate of interest on WCTL

VII
A
B

VIII

RELIEF AND
CONCESSIONS

(Rs. Lacs)

Units in tiny and

SSI sector
Units
in
other
sector

Upto 3% below BPLR

Upto 1%
below
BPLR

Upto 2%
below BPLR

Reduction
in
margin for existing
and
additional
exposure. However
a
minimum
margin of 15% may
be ensured except

By 10%

By 15%

Full Powers
Upto
Upto
3%
4%
below
below
BPLR
BPLR
Full powers

Upto 5%
below
BPLR

SN

IX (i)

RELIEF AND
CONCESSIONS

Circle
Head in
the rank of
DGM

GM

ED

CMD

in those cases/
sectors
where
prevailing
guidelines permit
lower margins. In
such
cases/
sectors, no further
reduction
in
margin
may
be
permitted. Normal
margin shall have
to be built up
within 3 years.
Sanction of FITL

Total FITL limits

Out of which
A With security *

75

250

450

1875

2500

75

250

450

1875

2500

20

65

115

937.5

1250

Without security *
Sanction of WCTL

IX(ii)
Total WCTL limits
Out of which
A With security *
B
X

Circle
Head in
the rank
of AGM

Without security *
Conversion of debt
into
Treasury
Instruments
i.e.
preference shares/
debentures/bonds/
equity
etc
or
involving debt asset
swap.

150

500

900

3750

5000

150

500

900

3750

5000

40

125

225

1875

2500

**Full
Power in
Std A/cs

**Full
Power

NIL

* The security shall include moveable and immoveable, primary and collateral,
existing or proposed.
** upto the extent of their vested loaning powers .
In case of default/delay in payment of interest or/and instalment, 2% penal
interest would be charged over and above the prevailing normal term loan
rate, which would be applied on the amount of default for the period of
default.
Term premium of 0.5% (or as applicable from time to time) shall be added to
all loans having a repayment period of three years & above.
The bank shall have a right to annually review all relief and concessions
extended and reset the terms or accelerate the repayment.
The bank shall have the right of recompense i.e. recovery of the sacrifice
made by it after the unit becomes profitable and all the term loans

outstanding at the time of restructuring and those sanctioned as a part of the

restructuring package have been repaid.
All interest rates shall be linked to BPLR of the bank.
Relief and concessions in service charges other than mentioned above
permissible under extant guidelines may be permitted to restructured
accounts. However, General Managers & above shall have full powers to
sanction relief and concessions in these service charges.
The relief and concessions mentioned above are the upper limits. Relief
should be granted based on the cash flows and should not be given as a rule.
The relief and concessions extended by the bank shall be at par with other
lenders of the same class, subject to a maximum of relief and concessions
detailed above.
The sacrifice by way of reliefs/concessions should be equitably shared by all
the
lenders/stakeholders
while
restructuring
of
account
under
consortium/multiple banking arrangement.
Any startup expenses or funding of future losses shall be financed by the
term lenders. In case we are one of the term lenders, the same shall be borne
by us prorata to our outstanding and shall carry the same terms.

The reliefs and concessions beyond those stipulated above may be

considered by Management Committee on merits.
8.

TREATMENT OF RESTRUCTURED INDUSTRIAL LOANS

i)
The stages at which the restructuring/rescheduling/renegotiation of the
terms of loan agreement could take place, can be identified as under:
a)

Before commencement of commercial production

b)

After commencement of commercial production but before the asset

has been classified as sub standard

c)

After commencement of commercial production and after the asset

has been classified as sub standard.

In each of the foregoing three stages, the rescheduling, etc., of principal

and/or of interest could take place, with or without sacrifice, as part of
the restructuring package evolved.
ii)

Treatment of restructured standard accounts

a)
A rescheduling of the instalments of principal alone, at any of the
aforesaid first two stages would not cause a standard asset to be classified in the
sub standard category provided the loan/credit facility is fully secured.
b)
A rescheduling of interest element at any of the foregoing first two stages
would not cause an asset to be downgraded to sub standard category subject to
the condition that the amount of sacrifice, if any, in the element of interest,
measured in present value terms, is either written off or provision is made to the

extent of the sacrifice involved. For the purpose, the future interest due as per
the original loan agreement in respect of an account should be discounted to the
present value at a rate appropriate to the risk category of the borrower (i.e.,
current BPLR + the appropriate credit risk premium for the borrower-category)
and compared with the present value of the dues expected to be received under
the restructuring package, discounted on the same basis.
c)
In case there is a sacrifice involved in the amount of interest in present
value terms, as at (b) above, the amount of sacrifice should either be written off
or provision made to the extent of the sacrifice involved.

iii)

Treatment of restructured sub-standard accounts

a)
A rescheduling of the instalments of principal alone, would render a substandard asset eligible to be continued in the sub-standard category for the
specified period, provided the loan/credit facility is fully secured.
b)
A rescheduling of interest element would render a sub-standard asset
eligible to be continued to be classified in sub standard category for the specified
period subject to the condition that the amount of sacrifice, if any, in the
element of interest, measured in present value terms, is either written off or
provision is made to the extent of the sacrifice involved. For the purpose, the
future interest due as per the original loan agreement in respect of an account
should be discounted to the present value at a rate appropriate to the risk
category of the borrower (i.e., current BPLR + the appropriate credit risk
premium for the borrower-category) and compared with the present value of the
dues expected to be received under the restructuring package, discounted on the
same basis.
c)
In case there is a sacrifice involved in the amount of interest in present
value terms, as at (b) above, the amount of sacrifice should either be written off
or provision made to the extent of the sacrifice involved. Even in cases where the
sacrifice is by way of write off of the past interest dues, the asset should
continue to be treated as sub-standard.
iv)

Upgradation of restructured accounts

The sub-standard accounts which have been subjected to restructuring etc.,

whether in respect of principal instalment or interest amount, by whatever
modality, would be eligible to be upgraded to the standard category only after the
specified period i.e., a period of one year after the date when first payment of
interest or of principal, whichever is earlier, falls due, subject to satisfactory
performance during the period. The amount of provision made earlier, net of the
amount provided for the sacrifice in the interest amount in present value terms
as aforesaid, could also be reversed after the one year period. During this one
year period, the sub-standard asset will not deteriorate in its classification if
satisfactory performance of the account is demonstrated during the period. In
case, however, the satisfactory performance during the one year period is not
evidenced, the asset classification of the restructured account would be governed

as per the applicable prudential norms with reference to the pre-restructuring

payment schedule.
v)
The provision made in a restructured/rescheduled account towards interest sacrifice, may
be reversed on satisfactory completion of all repayment obligations and the outstanding in the
account is fully repaid. Bank should not re-compute the extent of sacrifice each year and make
adjustments in the provisions made towards interest sacrifice.
vi)
While assessing the extent of security cover available for the credit facilities being
restructured, only tangible collateral security properly charged to the bank shall be reckoned and
intangible security like guarantee etc. promoters/others shall be ignored.
vii)
No restructuring/reschedulement/renegotiations shall be done with retrospective effect.
Post restructuring asset classification status shall be decided on the basis of asset classification as
on the date of approval of the restructuring package by the competent authority.
The instructions contained in sub-paras (i) to (iv) above would be applicable to all
type of credit facilities including working capital limits, extended to industrial
units, provided they are fully covered by tangible securities.
9.

RESTRUCTURING OF ASSETS OTHER THAN INDUSTRIAL ADVANCES

(a)
While the bank may consider accounts other than that of industrial units
also for restructuring, such accounts would have to qualify the basic test of
viability before it is considered for restructuring. However, these accounts would
not qualify for the special asset classification status available to restructured
standard and restructured substandard accounts as at paras 8 (ii) and 8 (iii)
above. The accounts which do not qualify for restructuring/ rescheduling in
terms of paras 8 (i) to 8 (iii) above, will be subjected to the following prudential
norms.
i)

These restructured/rescheduled accounts would continue to age and migrate

to the next asset classification status in the normal course. Banks
should ensure that the amount of sacrifice, if any, in the element of
interest - both in term loans or working capital facilities, measured in
present value terms, is either written off or provision is made to the
extent of the sacrifice involved. For the purpose, the future interest due
as per the original loan agreement in respect of an account should be
discounted to the present value at a rate appropriate to the risk category
of the borrower (i.e., current PLR + the appropriate credit risk premium
for the borrower-category) and compared with the present value of the
dues expected to be received under the restructuring package,
discounted on the same basis.

ii) These restructured/rescheduled accounts, whether in respect of principal

instalment or interest amount, by whatever modality, would be eligible to
be upgraded to the standard category only after a period of one year
after the date when first payment of interest or of principal, whichever is
earlier, falls due under the revised terms, subject to satisfactory
performance during the period. The amount of provision made earlier,

net of the amount provided for the sacrifice in the interest amount in
present value terms as aforesaid, could also be reversed after the one
year period.
(b)
As trading involves only buying and selling of commodities and the problems associated
with manufacturing units such as bottleneck in commercial production, time and cost escalation
etc. are not applicable to them, the guidelines contained in sub-paras 8(i) to 8(iv) above should not
be applied to restructuring/ rescheduling of credit facilities extended to traders.
(c)

Restructuring on account of natural calamities

The guidelines issued by RBI on restructuring as amended from time to time

shall apply for restructuring of loan assets for different types of borrowers.
10.

REPEATED RESTRUCTURING

The bank shall not repeatedly restructure/ reschedule the loan assets unless
there are very strong and valid reasons which warrant such repeated
restructuring/rescheduling. Restructuring should be based on viability
parameters. Any restructuring without looking into cash flows of the borrower
should be done only after seeking approval of the next higher authority alongwith
reason/ justifications for the same. The special asset classification status as
provided for in paragraphs 8(ii) and 8(iii) above shall not extend to accounts
where there is repeated restructuring/ rescheduling.

11.

REGULATORY TREATMENT OF FUNDED INTEREST

Income recognition in respect of the NPAs, regardless of whether these are or are
not subjected to restructuring/ rescheduling/ renegotiation of terms of the loan
agreement, should be done strictly on cash basis, only on realisation and not if
the amount of interest overdue has been funded. If, however, the amount of
funded interest is recognised as income, a provision for an equal amount should
also be made simultaneously. In other words, any funding of interest in respect
of NPAs, if recognised as income, should be fully provided for.
12.
REGULATORY TREATMENT OF CONVERSION
DEBENTURES OR ANY OTHER INSTRUMENT

INTO

EQUITY,

The amount outstanding converted into other instruments would normally

comprise principal and the interest components. If the amount of interest dues
is converted into equity or any other instrument, and income is recognised in
consequence, full provision shall be made for the amount of income so
recognised to offset the effect of such income recognition. Such provision would
be in addition to the amount of provision that may be necessary for the
depreciation in the value of the equity or other instruments, as per the
investment valuation norms. However, if the conversion of interest is into equity

which is quoted, interest income can be recognised at market value of equity, as

on the date of conversion, not exceeding the amount of interest converted to
equity. Such equity must thereafter be classified in the available for sale
category and valued at lower of cost or market value. In case of conversion of
principal and /or interest in respect of NPAs into debentures, such debentures
should be treated as NPA, ab initio, in the same asset classification as was
applicable to loan just before conversion and provision made as per norms. This
norm would also apply to zero coupon bonds or other instruments which seek to
defer the liability of the issuer. On such debentures, income shall be recognised
only on realisation basis. The income in respect of unrealised interest which is
converted into debentures or any other fixed maturity instrument should be
recognised only on redemption of such instrument. Subject to the above, the
equity shares or other instruments arising from conversion of the principal
amount of loan would also be subject to the usual prudential valuation norms as
applicable to such instruments.
13.

DISCLOSURES

Disclosures in the Notes on Account to the Balance Sheet pertaining to

restructured accounts apply to all accounts restructured during the year. Banks
should also disclose in their published Annual Accounts, under the Notes on
Accounts, the following information in respect of restructuring etc. undertaken
during the year:

i)
ii)
iii)
14.

total amount of loan assets subjected to restructuring etc;

the amount of standard assets subjected to restructuring etc. and
the amount of sub standard assets subjected to restructuring etc.
MONITORING MECHANISM

All accounts restructured shall be monitored by the Restructuring Cell at

the controlling office of the branch.
For effective coordination and implementation of the scheme, particularly where
there are more than one lender, setting up of a Monitoring Committee comprising
the term lenders and WC lenders shall help in resolving of inter lender/lender
borrower issues expeditiously. The bank with the largest share may be made the
Convener of the Monitoring Committee. The Committee shall review the
implementation of the restructuring package, compliance of terms and conditions
of the package and performance of the Company vis--vis the projections
accepted in the restructuring package. Any inter-lender issue should be
discussed and resolved by the Committee.
In case we are the sole lender, the committee shall comprise of one representative
of Restructuring Cell, Credit/SAMD section of the controlling office and headed

by Chief/AGM of the respective Controlling Offices. The promoters may be invited

to the Committee meetings. The Committee shall meet at least monthly till
implementation of the package and at least quarterly thereafter.
Standard terms and conditions
The need for restructuring arises in stressed assets. The reasons for stress may
be internal to the Company like diversion of funds, non-induction of promoters
contribution, poor vision and mismanagement or external to the Company/
management like sudden downturn in the market, technology changes, policy
changes etc. An indicative list of standard terms and conditions that may be
imposed by the bank is given at Appendix II. The reasons for the stress in the
account shall be the guiding factor while stipulating the conditions. The list given
at the annexure is only indicative and the sanctioning authority may impose
conditions as deemed necessary.
Time frame for restructuring
The identification of need for restructuring should be done within 1-2 weeks of
the first signs of default and restructuring package should be worked out and
implemented by the bank within a maximum period of 60 days from date of
receipt of request. The time frame for various steps in the restructuring process
should be as given overleaf.

S.No.
1
2
3
4
5

STEPS TO BE TAKEN
Forwarding of the proposal to the sanctioning
authority alongwith branch views/ recommendations
Joint
meeting
with
other
lenders
in
multiple/consortium accounts
TEV study
Sanction of the restructuring package
Implementation of the restructuring package

TIME FRAME
One week
One week
Two weeks
Two weeks
Two weeks

Adherene to the above schedule shall ensure that the account does not slip to
NPA category. It must be ensured that even in large and complicated cases,
sanction by the competent authority is obtained before slippage of account to
NPA category.
15.

RESTRUCTURING MECHANISM

The different mechanisms available for restructuring of debt are as under.

a)
b)
c)

Corporate Debt Restructuring

Rehabilitation scheme sanctioned under the aegis of BIFR.
Restructuring under Debt Restructuring Mechanism for Small and
Medium Enterprises.

The Restructuring Policy shall be guiding light for all types of restructuring of
loan assets. CDR mechanism & DRM for SMEs already in place, should be the
preferred mechanisms for restructuring of debts in eligible accounts. However,
need may arise for the bank to reschedule/restructure the accounts outside
CDR/DRM for SMEs also due to various reasons such as time constraint, lack of
consensus/majority amongst the lenders etc., in which case restructuring may
be considered within the framework of this policy.
16.

MIS

All the accounts restructured during the month should be reported alongwith
the Limit Sanctioned Statement of the respective Circle Offices to CAD (O) as per
the proforma available at Appendix-III.
Besides the above, the following MIS is to be reported:
All Circle Offices shall compile the data of accounts restructured under this
policy for the branches under their jurisdiction and submit the same to CAD(O),
HO on the proforma placed at Appendix IV on monthly basis. The statement
should reach HO within 7 days of the close of the month. At HO the consolidated
data in respect of restructured accounts falling under Circle Office powers should
be placed to CMD and accounts restructured under HO powers should be placed
to MC in its ensuing meeting. Circle Offices shall submit the statement in soft as
well as hard copies.
A half-yearly statement as per Appendix-V be submitted by the branches to their
respective Controlling Offices within 10 days from the close of the quarter who in
turn shall consolidate the position and submit the same to the Chief, CAD (O),
HO, by the end of the next month. The consolidated position of the bank in this
regard as at the end of each half-year i.e. September/March, shall be conveyed by
CAD (O) to Finance Division, Central Office, HO, so that the requirement of
disclosure in banks published Annual Accounts under the Notes of Accounts in
terms of the guidelines at para 16 above be complied with.
However, the extant guidelines with regard to reporting of accounts restructured
under CDR Mechanism, DRM for SMEs and BIFR to CDR Cell, IRD, HO shall
continue as hithertofore.
17.

GENERAL GUIDELINES

i)

As trading involves only buying and selling of commodities and the

problems associated with manufacturing units such as bottleneck in
commercial production, time and cost escalation etc. are not applicable to
such accounts. As such, in terms of RBI guidelines the special asset
classification status, as available to the industrial units, is not available in
case of restructuring of trading accounts. These accounts continue to age
and migrate to next asset classification in normal course. The field

functionaries while considering restructuring in a trading account, should

take cognizance of this aspect.
i)

Banks cannot reschedule/restructure/renegotiate borrowal accounts with

retrospective effect. The asset classification status as on date of approval
of the restructured package by the Competent Authority would be relevant
to decide the asset classification status of the account after restructuring.
Thus, the field functionaries are advised to correctly identify the status of
asset classification of the borrowal account at the time of considering the
restructuring/reschedulement which should also be clearly mentioned in
the appraisal note to avoid any ambiguity in future.

ii)

As the restructuring of account on second occasion renders the same to

sub standard category, it is advised that to avoid instances of repeated
restructuring, realistic assessment of business potential and cash flows
should be done. The capital structure and debt servicing obligation
should be aligned to realistically projected cash flows.

iii)

Instances have been noticed where upgradation of restructured NPA

account is done immediately after the sanction of restructuring package
against the laid down guidelines of upgradation after specified period, i.e.
a period of one year after the first payment of interest/instalment.

iv)

As per RBI guidelines for projects financed by the banks after 28.5.2002, if
the date of commencement of commercial production extends beyond a
period of six months after the date of completion of project, as originally
envisaged at the time of initial financial closure of the project, the account
should be treated as sub standard asset except in case of infrastructure
projects, where if the date of commencement of commercial production
extends beyond a period of two years after the originally envisaged date of
completion of the project the account should be treated as sub standard.
The revised guidelines of two years are applicable w.e.f. 31 st March, 2008.
Accordingly, it is advised that a realistic assessment of the project should
be done while assessing the date of completion of the project.

v)

As details of restructured accounts need to be disclosed in the Balance

Sheet, it is imperative that information in this regard should be reported
correctly and timely to ensure correct reporting.

vi)

While assessing the extent of security cover available to the credit

facilities, which are being restructured/ rescheduled, collateral security
would also be reckoned, provided such collateral is a tangible security
properly charged to the bank and is not in the intangible form like
guarantee etc. of the promoter/ others. Since the rescheduling of
instalment of principal alone would not cause a standard asset to be
classified as sub standard provided the loan/credit facility is fully secured,

the field functionaries are advised to keep this in view while considering
restructuring of accounts.
vii)

Proposals for restructuring should be processed expeditiously to avoid any

undue delay resulting in further deterioration of asset classification status
of the account.
Normally restructuring shall not take place unless alteration/changes in
the original loan agreement are made with the formal consent/application
of the debtor. However, the process of restructuring can be initiated by the
bank in deserving cases subject to customer agreeing to the terms and
conditions.

viii)

x)

Provision on additional facilities sanctioned need not be made for a period

of one year from the date of disbursement in the following cases
1.

Additional facilities sanctioned as per package finalised by BIFR

and/or term lending institutions.

2.

In respect of additional credit facilities granted to SSI units which

are identified as sick [as defined in Section IV (Para 2.8) of RPCD
circular RPCD.PLNFS.BC No. 83/06.02.31/2004-2005 dated 1st
March 2005] and where rehabilitation packages/nursing
programmes have been drawn by the bank itself or under
consortium arrangements.

The policy shall be amended from time to time within the overall RBI
guidelines received in the matter.

**************

Appendix-I
FORMAT FOR RESTRUCTURING PROPOSAL
BO:
CO:

Conformity with RBI guidelines

a) Asset Classification
b) Wilful Default (Yes/No)
c) BIFR/Non-BIFR
d) DRT/Legal proceedings in Courts/
Action under SARFAESI Act
e) No. of FIs/Banks
f) Total exposure (Rs. Lakh)
1. NAME OF THE APPLICANT
(Registered Office Address
2. Date of submission of Application
3. Location of unit
4. Products & respective Installed Product 1
capacities

Product 2

Product 3

5. Constitution of the applicant

6. Industry / Sector
7. Promoters (Group, if any)
8. Composition of Board of Directors/ Partners
Name

Age

Qualification

9. a) Shareholding pattern [in case

of Company]
- Promoters

Experience

Other
Director

Financial
Resourceful

ships

ness

- Associates
- Other body corporates
- Institutions/Banks (give details)
- Public/others (give details)
TOTAL
b) In case of listed shares, give
details of exchange, market price,
demat position, and the previous
public issues/ rights issues/ private
placement made by the company
and the status of encumbrance /
pledge of shares.
10. Brief Background of the Co.

Salient features like when incorporated,

performance Special technical features like
locational/ technical/ infrastructural/plant
& machinery/ utilities/ financial/ market
bottlenecks, problems faced by the company,
other important factors having a bearing on
Co.'s performance.

11. Banks/ Institutions involved

Sanc. Disb. O/s

Overdues
Prin. Int. Oth.

1. Term loans
2. Working Capital
3. Others
TOTAL
13. Group companies, if any

Since when

Amount o/s

- 1 (Industry, location)

Brief description of each

group company including
products and installed
capacities, remarks
on past track
record, TL/ WC
facility availed etc.

Past performance (last

three years: I, II, III)
Net sales, GP, NP and Net
worth

- 2 (Industry, location)
Support from/to group Cos. by
way of equity/loans &
advances/guarantees

14. Past Profit & Loss Accounts, Balance

Sheets, Cash Flow Statement for last three
years (for projects under implementation,
furnish the Sources and uses of funds since
inception)

Particulars
Capacity
Utilization
Sales
PBDIT
PAT
Capital
Reserves
Acc Losses {if
any]
TCA
TCL

15. Brief description (Including

agencies involved in implementation
and nature of contracts) of the
existing project.
16. Project cost for projects under Original
implementation (detailed breakup)

Revised

Mention reasons for overrun for each

revision
17. Means of finance for projects
under implementation (detailed
breakup)

Original

Revised

18. Institution/bank-wise assistance

(Mention status: whether
sanctioned/disbursed/etc.)

Original

Revised

19. Existing Security position

a) For term lenders (if created)
b) For WC lenders (if created)
c) FACR (as per last audited A/cs)
d) CR (as per last audited A/cs)

e) Book Value of assets

20. Restructuring proposal in brief

a) Justification for restructuring
b) Cut-off date
c) Terms of restructuring for:
(i)

Term lenders

(ii)

WC lenders

(iii)

Others

d)
Whether
proposal
involves
additional finance. If yes, specify
rationale behind the same and the
institution/bank-wise break-up of
assistance sought.
e) Waivers [relief in past dues]for
(ii)

Term lenders

(iii)

WC lenders

(iv)

Others
TOTAL

f) Sacrifices [relief in future dues] for:

(i)

Term lenders

(ii)

WC lenders

(iii)

Others
TOTAL

21. Cost of Restructuring scheme

a) Capital expenditure
b) Pressing creditors
c) Upfront payment (FIs/banks)
d) Addl. M. M. for W.C.
e) Others (please specify)
TOTAL
22. Means of finance
a) Promoters contribution
-

Capital

Unsecured loan

b) Fresh term loans

c) Fresh W.C. borrowing
d) Internal accruals
e) Others (please specify)
TOTAL
23. Critical ratios

Original

Revised

a) Average DSCR
b) Debt-Equity Ratio
c) Break-even point
d) Cash Break-even point
e) FACR
24. Market prospects
a) Present
b) Future
25. Gross Profit envisaged vis--vis current industry
average
26. Projected balance sheets, P & L Account, cash
flow statements and Ratio Analysis alongwith
justifications. The projections should cover the
proposed repayment schedule.

Attach separate sheets. [in case

any study has been conducted by
an outside agency, TEV study
report may be enclosed]

27. Resourcefulness of the promoters to raise

additional
contribution
as
required
under
rehabilitation package (Include details/ statement of
net worth of promoter group)
28. Valuation of assets of the Co. (Rs. lakh)

Land

Building

Plant
&
M/c

Current
Assets

Total

a) Realisable value
b) Replacement value
c) Distress sale value
d) Fair market value
(As going concern)
29. Proposed additional security
30. Any other important factor specific to the unit

Tangible
Assets

Intangible
Assets

Total

Appendix-II
STANDARD TERMS AND CONDITIONS
The lenders may
(i) Appoint Concurrent Auditors.
(i) Seek assignment / hypothecation of rights that may be available to the
company.
(ii) Impose embargo on incurring any capital expenditure without prior
approval from Monitoring Committee
(iii) Impose embargo on sale of fixed assets / investments (wherever applicable)
without prior approval of Monitoring Committee
(iv) Revoke the package in the event of poor performance, non compliance of
terms and conditions or other events of default.
(v) Impose embargo on declaring any dividend without prior written approval.
(vi) Renegotiate the terms of restructuring in the event of better performance
than projections.
(vii)
Impose embargo on creation of any charge or lien or escrow of
future cash flows
(viii)
Reserve the right of recompense for waiver/ sacrifices
(ix) Reset the fixed interest rate after every 3 years on term loans and every
year on WC facilities.
(x) Seek pledge of share holding of the promoters and their associates.
(xi) Convert entire/part of loan in event of default into equity
(xii)
Convert sacrifices into equity
(xiii)
Create negative lien on property, shares, etc.
(xiv)
Disclose the name to RBI/CIBIL or publish in the press in the event
of default
(xv)
Insist for establishment of TRA and submission of quarterly/annual
cash flows by companies.
(xvi)
Set up of Asset Sale Committee (wherever applicable)
(xvii)
Stipulate sale of non core assets as a part of restructuring package.
(xviii)
Seek induction of promoters contribution by way of capital or
otherwise.
(xix)
Seek Corporate Guarantee of group companies.
(xx)
Stipulate appointment of whole-time director Finance.
(xxi)
Appoint lenders engineers / monitoring agency.
(xxii)
Stipulate derating of equity wherever deemed necessary by the
lenders.
(xxiii)
Stipulate change in the constitution of the Board by increasing/
inducting lenders nominees.
(xxiv)
Stipulate change of statutory auditors.
(xxv)
Stipulate mortgage of brands.
(xxvi)
Insist for bringing back diverted funds/investments in associate
companies within a time frame in cases of diversion, wherever
possible.

(xxvii)

(xxviii)
(xxix)
(xxx)
(xxxi)
(xxxii)

Stipulate induction of strategic investor / co-promoter where the

existing promoters are not in a position to induct funds for running
the unit on viable lines.
Appoint independent chairman
Appoint professional CEO, where financial indiscipline is observed.
Stipulate pledge of voting rights of minimum 51% from pledged /
owned shares in all cases of stress due to internal factors.
Stipulate broad basing of board in corporate accounts where
deemed necessary.
Appoint nominee director/s where deemed necessary.

The promoters to
(i) Provide their personal guarantee, wherever sought.
(i) Give an undertaking to bring in additional funds for meeting cash flow
shortage.
(ii) Agree to induct funds as proposed in the scheme.
In case of suit filed account, the company and the concerned lenders to file
consent terms

**********

Appendix-III
PUNJAB NATIONAL BANK
Circle----------------------------DETAILS OF ACCOUNTS CONSIDERED FOR RESTRUCTURING DURING THE
MONTH ----------------(Rs. in lacs)
S.
No.

Name

Nature
&
amount
of limit

Additional
finance,
if
any by way of
restructuring

Details
of
concessions
permitted
(Attach
separate
sheet,if
required)

Nature
Others/
& value Remarks
of
security

Appendix-IV
PUNJAB NATIONAL BANK
Circle----------------------------MONTHLY PROGRESS REPORT FOR RESTRUCTURED ACCOUNTS
FOR ----------------SN
1

PARTICULARS

NO -

AMT IN Rs.
LACS

APPLICATIONS PENDING AT THE BEGINNING

OF THE MONTH
APPLICATIONS RECEIVED DURING THE
MONTH *
APPLICATIONS APPROVED DURING THE
MONTH
APPLICATIONS PENDING AT THE END OF
THE MONTH [1+2-3]
ADDITIONAL EXPOSURE TAKEN

2
3
4
5

* Please specify the mechanism under which the restructuring package has
been approved i.e. whether CDR/DRM for SME/Others etc.
DETAILS OF THE BORROWERS ASSISTED BY WAY OF RESTRUCTURING
POLICY
S.
No.

Name Of The
Borrower

Sanctioning
Authority

Exposure

Before
restruc
turing

Other
information/
Remarks
After
restruc
turing

Appendix-V
STATEMENT OF THE ACCOUNTS RESTRUCTURED AS AT HALF-YEAR ENDED SEPTEMBER/MARCH20__
(Restructuring/Rescheduling/Renegotiation)

Sl.
No.

Name
Borrower

of Nature
Extent
limit
(WC/TL)

& Total amount of

of loan
assets
restructed
(as on the date
of
Restructuring)

Outstanding
balance
(as at the end of
half-year)

Summary:
(Amount in 000s)
Total amount of loan assets subjected to restructuring etc;
The amount of standard assets subjected to restructuring etc.
The amount of sub standard assets subjected to restructuring etc.
(Signatures of the Incumbent Incharge)
BO: ______________________________

(Amount in
000s)
Asset classification
Amount
As on the date As at the sacrifice
of
end
of (provided/to
Restructuring
half-year provided for
written off/to
written off)

of
be
or
be

Distinctive No.______________________