sagaidierd aie, 1DBI Tower, 10at fia, aE Re, 19th Floor, Cue Parade, BRS ~ 400 008. Mumbai - 400 005. ‘BRAT: 3294 1092/3204 1088 |. Tel: 3294 1092/3294 1088 3294 1089/3294 1091 3294 1089/3284 1091 Sere: 22185591 Fax : 22185591 aR : www.cthinda.org Website : www.ccrindia.org Re er wen Comprato Dest Herbig Cab Y 12018-16 dune 25, 2015 BY.CDR(PMJ)No. To, All Nodal Officers CDR Master Circula: ipdated on April 29, 2015 CDR Core Group at its meeting held-on April 29, 2016, approved the updated Master Circular incorporating all revised RBI guidelines relating to restructuring under CDR Mechanism and also all policy decisions taken by CDR Core Group which was noted by CDR Standing forum at its meeting held on April 29, 2015. A copy of the updated Master Circular is enclosed for your information and records. The Master Circular is also being placed on the CDR website. Yours faithfully, Dy. General Manager‘Table of Contents SN [Contents Pg No 1 Membership of CDR System 1 2(A) | Time Frame and Procedure for Processing and Implementation of| 1 Restructuring Schemes (Under old System) 2(B) | Time Frame for Processing and Implementation of Restructuring Schemes| 3 | (under JLF mechanism) 2(C) | Corrective Action Plan (CAP) by JLF 4] 2(D) _ | Restructuring (as one of the option under CAP) 5 2(E) | Restructuring Referred by the JLF to the CDR Call 6 2) _| Prudential Norms on Asset Classification and Provisioning 7 [2(G) | Other Issues / Conditions Relating to Restructuring by JLE/CDR Call 9 3 Scrutiny before CDR Reference/ Approval 12 4 Financial Viability Parameters: Benchmark Levels 14 [5 Category I & Il under CDR System 5 6 Hligibility Criteria: Cases of BIPR, Suit Filed Cases, Wilful Defauiters and | 16 Non-Co operative Borrower Borrower Classification for stipulation of Standard Terms & Conditions 18 | 8 Decision process in CDR System 20 9 Holding on operations 2 10 Monitoring Mechanism & Fee Structure 24 1 Sharing of Securities 29 12 ‘Conversion of Debt into Equity 31 fa3 Additional Finance and Sharing thereof 33 14 Payment Parity 39 b ‘TRA: Treatment for Interest on WC and Term Loan (TL/WCTL/FITL) 39 16 Prudential & Accounting Issues 40 17 | Prepayment of Restructured Debt 2 18 Recompense Clause B 19° | OTS/Assignment of Debis 50 20 Revocation of Restructuring Scheme/Legal Action for Recovery 54 21 | Re-workout/Re-entry in CDR | 54 22 Exit of Cases from CDR System 55 23 | Annexure I: Financial Viability Parameters 5624 Annexure-II: BIFR Cases: Eligibility Criteria, Financial Viability Parameters) 62 and Procedural Aspects 5 Annexure-IIl: Cases of Wilful Defaulters & Non Co-operative Borrowers: 65 Eligibility criteria, Financial Viability Parameters and Procedural Aspects 26 | Annexure -IV: Standard Conditions to be stipulated in all CDR cases] 72 including borrower Class - ‘A’ 27 | Annexure - V: Information to be furnished by the lead on implementation | 78 of restructuring scheme as approved by the CDR EG 28 | Annexure - VI; List of circulars /clarifications issued /received post CDR 80 Master Circular dated January 9, 2013 29 | Annexure -VIT - Certificate from Monitoring Institution 81 30 Annexure VII - JLF Agreement ies 822(A) 24 22 CDR MASTER CIRCULAR 1, MEMBERSHIP OF CDR SYSTEM Corporate Debt Restructuring (CDR) is a voluntary, non-statutory mechanism for restructuring of multiple/consortium advances of lenders. For Admission of new permanent member in CDR System: On receipt of a request from a financial institution or a bank or a non-banking financial company or asset reconstruction company or state level institution or co-operative bank or any other person who has a stake in the Eligible Borrower for admission to the CDR System, the CDR Core Group shall consider such request and take a final decision thereon having regard to the objectives of the CDR System and report its decision to the CDR Standing Forum. For Participation of Non-members in the CDR System on Transaction-to- ‘Transaction Basis CDR Mechanism can be joined by all the banks and financial institutions. It can also be joined by Non Banking Finance Companies (NBFCs), Asset reconstruction Companies (ARCs), State Level Institutions (SLIs) and Co- operative Banks on transaction-specific basis. 2. TIME FRAME & PROCEDURE FOR PROCESSING AND IMPLEMENTATION OF RESTRUCTURING SCHEMES Under Old System The Flash Reports and Final Restructuring Proposals should be circulated ten days before and Review/Status Notes, seven days before the meeting of the CDR Empowered Group (EG) to the Nodal Officers of all participating lenders The Final Restructuring Proposal should be submitted to the CDR EG at the earliest after cleararice of the Flash Report so that the final package may be23 24 25 26 @ i) approved by CDR EG within a period of 60 days from the date of admission of the Flash Report, except for large and complicated cases, to be decided by CDR EG, for which the time frame would be 90 days. If the final decision on a particular case is not taken within the stipulated time frame ie. 60/90 days, as the case may be, the restructuring proposal would automatically be treated as closed unless extension of time beyond 60/90 days is specially sought by the Referring Institution (up to a maximum limit of 180 days) and the same is permitted by the CDR Core Group. Such closed cases would be considered for re-entry in the CDR system only with the permission of the Core Group. As per RBI guidelines, approved CDR package should be implemented within 120 days from the date of approval by CDR EG. Any delay in sanction and implementation of the restructuring package will be construed as an event of non-compliance and in terms of the Inter-Creditor Agreement, non-complying lenders might be called upon to pay compensation as might be determined by the CDR Core Group. All cases for which CDR Core Group has given in-principle approval for Re- entry, Rework, entry of BIFR cases or cases of Wilful Defaulters should be finalised and referred to CDR EG within 60 days of approval by CDR Core Group. Time frame for the execution of MRA/'TRA: To avoid undue delay in execution of MRA and TRA, following time frame is prescribed: On approval of the restructuring package, Monitoring Institution (MI) should within 10 business days circulate draft MRA incorporating necessary modifications in terms of restructuring package, without waiting for the sanction letter from individual members. Lenders should convey their observations/suggestions within three weeks of receipt of draft MRA from ML. If no communication is received from lender(s) within three-weeks, it may be treated as if the lender has no objection to the draft(iii) Thereafter, MI should incorporate relevant suggestions/modifications to the draft MRA and fix the date for execution of MRA within a week's time (iv) Similarly, TRA Bank should circulate the draft TRA incorporating necessary modifications in terms of restructuring package and circulate the same to the lenders on receipt of letter of approval from CDR cell. (v) The lenders shall convey their suggestions/modifications within three weeks of receipt of draft TRA. If no communication is received from lender(s) within three weeks; it may be treated as if the lender has no objection to the draft TRA. (vi) Thereafter, TRA banks should incorporate relevant suggestions/ modifications to the draft TRA and fix the date for execution of TRA within a week's time. 2.7 Definition of Cut-off Date (COD) under old system/non JLF route: COD shall be last day of preceding calendar quarter in which the reference is made to CDR Cell and the same should be within 90 days prior to the date of reference. Generally, the first day of the calendar quarter in which the reference is made is to be considered as COD. 2(B) Under Joint Lenders’ Forum Mechanism i Banks are advised that as soon as an account is reported by any of the lenders to CRILC as SMA-2 (Principal or interest payment overdue between 61 to %days), they should mandatorily form a committee to be called Joint Lenders’ Forum (LF) if the aggregate exposure (AE) [fund based and non-fund based taken together] of lenders in that account is Rs. 100 crore and above. Lenders also have the option of forming a JLI' even when the AE in an account is less than Rs.100 crore and/or when the account is reported as SMA or SMA-1. ii, While the existing Consortium Arrangement for consortium accounts will serve as JLF with the Consortium Leader as convener, for accounts under Multiple Banking Arrangements (MBA), the lender with the highest AE will convene JL at the earliest and facilitate exchange of credit information on the account. In case there are multiple consortium of lenders for a borrower (eg. separateiii, vi. 20) consortium for working capital and term loans), the lender with the highest AE will convene the JLF. It is possible that a borrower may request the lender/s, with substantiated grounds, for formation of a JLE on account of imminent stress. When such a request is received by a lender, the account should be reported to CRILC as SMA.0, and the lenders should also form the JLF immediately if the AE is Rs. 100 crore and above, It is, however, clarified that for the present, JLF formation is optional in other cases of SMA-0 reporting. Alll the lenders should formulate and sign an Agreement (which may be called JLE agreement) incorporating the broad rules for the functioning of the JLF (Annexure - VIM). The Indian Banks’ Association (IBA) has prepared a Master JLF agreement and operational guidelines for JLF which can be adopted by all Tenders. ‘The JLF should explore the possibility of the borrower setting right the irregularities / weaknesses in the account. The JLF may invite representatives of the Central/State Government/ Project authorities/Local authorities, if they have a role in the implementation of the project financed. While JLF formation and subsequent corrective actions will be mandatory in accounts having AE of Rs.100 crore and above, in other cases also the lenders will have to monitor the asset quality closely and take corrective action for effective resolution as deemed appropriate. Definition of Cut-off Date (COD): COD shall be the first day of the month and should not be more than 60 days preceding to the SMA 2 date. Corrective Action Plan (CAP) by JLF In order to arrive at an early and feasible solution to preserve the economic value of underlying assets as well as lenders loans, the options available under Corrective Action Plan (CAP) by the JLF would generally include: a) Rectification, b) Restructuring (Under JLE/CDR) & c) Recovery.ii, iti, iv. 2(D) ‘The decisions agreed upon by a minimum of 75% of creditors by value and 60% “of creditors by number in the JLF would be considered as the basis for proceeding with the restructuring of the account, and will be binding on all lenders under the terms of the ICA. However, if the JLF decides to proceed with recovery, the minimum criteria for binding decision, if any, under any relevant laws/ Acts would be applicable. The JLF is required to arrive at an agreement on the option to be adopted for CAP within 45 days from (i) the date of an account being reported as SMA-2 by one or more lender, or (i) receipt of request from the borrower to form a JLF, with substantiated grounds, if it senses imminent stress. The JLF should sign off the detailed final CAP within the next 30 days from the date of arriving at such an agreement. If the JLF decides on options of Rectification or Restructuring, but the account fails to perform as per the agreed terms under any of the above options, the JLF should initiate the option of recovery under CAP If the JLE decides restructuring of the account as CAP, it will have the option of either referring the account to CDR Cell after a decision to restructure is taken under CAP or restructure the same independent of the CDR mechanism. Restructuring (as one of the option of CAP) Restructuring of the account is possible only if it is prima facie viable and the borrower is not a wilful defaulter, i.e., there is no diversion of funds, fraud or malfeasance, etc. At this stage, commitment from promoters for extending their personal guarantees along with their net worth statement supported by copies of legal titles to assets may be obtained along with a declaration that they would not undertake any transaction that would alienate assets without the permission of the JLF. Any deviation from the commitment by the borrowers affecting the security /recoverability of the loans may be treated as a valid factor for initiating recovery process. For this action to be sustainable, the lenders in the JLF may2) ii sign an Inter Creditor Agreement (ICA) and also require the borrower to sign the Debtor Creditor Agreement (DCA) which would provide the legal basis for any restructuring process. The formats used by the Corporate Debt Restructuring (CDR) mechanism for ICA and DCA could be considered, if necessary with appropriate changes. Further, a ‘stand still’ clause could be stipulated in the DCA to enable a smooth process of restructuring, The ‘stand-still’ clause does not mean that the borrower is precluded from making payments to the lenders. The ICA may also stipulate that both secured and unsecured creditors need to agree to the final resolution. Restructuring Referred by the JLF to the CDR Cell If the JLF decides to refer the account to CDR Cell after a decision to restructure is taken, the following procedure may be followed: As the preliminary viability of account has already been decided by the JLE, CDR Cell/JLF convener/lead bank shall arrange to prepare the Techno-Economic Viability (TEV) study and restructuring plan in consultation with JLF within 30 days from the date of reference to it by the JLF. For accounts with AE less than Rs.500 crore, the above-mentioned Restructuring package should be submitted to CDR Fmpowered Group (EG) for approval. Under extant instructions, CDR EG can approve or suggest modifications but ensure that a final decision is taken within a total period of 90 days, which can be extended up to a maximum of 180 days from the date of reference to CDR Cell. However, the cases referred 10 CDR Cell by JLF will have to be finally decided by the CDR EG within the next 30 days. If approved by CDR EG, the restructuring package should be approved by all lenders and conveyed to the borrower within the next 30 days for implementation. For accounts with AE of Rs.500 crore and above, the TEV study and restructuring package prepared by CDR Cell/ JLF convener/ lead bank will have to be subjected to an evaluation by an Independent Evaluation Committee (IEC) of20) ii, experts, The IEC will look into the viability aspects after ensuring that the terms of restructuring are fair to the lenders. The IEC will be required to give their recommendation in these aspects to the CDR Cell under advice to JLF within a period of 45 days. Thereafter, considering the views of IEC if the JLF decides to go ahead with the restructuring, the same should be communicated to CDR Cell and CDR Cell should submit the restructuring package to CDR EG within a total period of 7 days from receiving the views of IEC. Thereafter, CDR BG should decide on the approval/modification/rejection within the next 30 days. If approved by CDR EG, the restructuring package should be approved by all lenders and conveyed to the borrower within the next 30 days for implementation. Prudential Norms on Asset Classification and Provisioning, While a restructuring proposal is under consideration by the JLE'/CDR, the usual asset classification norm would continue to apply. The process of re-classification of an asset should not stop merely because restructuring proposal is under consideration by the JLF/CDR. However, as an incentive for quick implementation of a restructuring package, the special asset classification benefit on restructuring of accounts as per extant instructions would be available for accounts undertaken for restructuring under these guidelines, subject to adherence to the overall timeframe for approval of restructuring package detailed above and implementation of the approved package within 90 days from the date of approval. The asset classification status as on the date of formation of JLF would be the relevant date to decide the asset classification status of the account after implementation of the final restructuring package. As mentioned in paragraph 15.2.3 in Part- B of the RBI Master Circular dated July 1, 2014, the special asset classification benefit as above will however be withdrawn for all restructurings with effect from April 1, 2015 with the exception of provisions related to changes in Date of Commencement ofiii. iv. b) Commercial Operations (DCCO) in respect of infrastructure and non- infrastructure project loans. As a measure to ensure adherence to the proposals gitidelines as also to impose disincentives on borrowers for not maintaining credit discipline, accelerated provisioning introduced as mentioned in the RBI Master Circular dated July 1, 2014 & subsequent clarification circular dated October 21, 2014. Special asset classification benefit on restructuring of accounts as per extant instructions would be available for accounts undertaken for restructuring under RBI guidelines, subject to adherence to the overall timeframe for approval and implementation of restructuring package. Therefore, if JLF/CDR takes a shorter time for an activity towards restructuring and implementation of the approved package as against the prescribed limit, then it can have the discretion to utilize the saved time for other activities provided the aggregate time limit is not breached. The extract of RBI mail box clarification dated March 31, 2015 is as under ~ “Our extant guidelines allow the asset classification benefit to a restructured account with reference to three different reference dates for three different restructuring frameworks as given below: Restructuring by CDR Cell on direct reference from banks outside the JLF Framework: Asset classification existing on the date of reference to CDR Cell (para 15.2.1 of MC on IRAC Norms dated July 1, 2014). Restructuring by banks (bilateral or multilateral restructuring outside JLF or CDR Framework): Asset classification existing on the date of receipt of the restructuring application (para 15.2.1 of MC on IRAC Norms dated July 1, 2014), in cases where formation of JLF is not mandatory.2G) ii, Restructuring under the Framework to revitalize distressed assets (either by JLF or CDR Cell): Asset classification existing on the date of formation of JLF (para 25.2 of MC on IRAC Norms dated July 1, 2014). It is clarified that in all the cases where the respective reference dates for deciding asset classification on restructuring of advances, as indicated in the three situations above, fall before April 1, 2015, special asset classification benefit as per the extant instructions will be available, provided that all the required conditions stipulated in the above-mentioned “Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” dated July 1, 2014 are fulfilled. In particular, banks are advised to strictly adhere to the instructions contained in paragraph 15.2.1 of the Master Circular ibid which prescribes that during the pendency of the application for restructuring of the advance with the bank, the usual asset classification norms would continue to apply, i.e. the process of reclassification of an asset should not stop merely because the application is under consideration. However, as an incentive for quick implementation of the package, if the approved package is implemented by the bank as per the relevant prescribed time schedules and norms, the asset classification status may be restored to the position which existed on the relevant reference date”, Other Issues/Conditions Relating to Restructuring by JLF/CDR Cell Both under JLF and CDR mechanism, the restructuring package should also stipulate the timeline during which certain viability milestones (e.g. improvement in certain financial ratios after a period of time, say, 6 months or 1 year and so on) would be achieved. The JLF must periodically review the account for achievement/non-achievement of milestones and should consider initiating suitable measures including recovery measures as deemed appropriate Restructuring whether under JLF or CDR is to be completed within the specified time periods. The JLF and CDR Cell should optimally utilise the specified timeiii iv. periods so that the aggregate time limit is not breached under any mode of restructuring, If the JLE/CDR takes a shorter time for an activity as against the prescribed limit, then it can have the discretion to utilise the saved time for other activities provided the aggregate time limit is not breached. The general principle of restructuring should be that the shareholders bear the first loss rather than the debt holders. With this principle in view and also to ensure more ‘skin in the game’ of promoters, JLF/CDR may consider the following options when a loan is restructured: + Possibility of transferring equity of the company by promoters to the lenders to compensate for their sacrifices; * Promoters infusing more equity into their companies; + Transfer of the promoters’ holdings to a security trustee or an escrow arrangement till turnaround of company. This will enable a change in management control, should lenders favour it. In case a borrower has undertaken diversification or expansion of the activities ‘which has resulted in the stress on the core-business of the group, a clause for sale of non-core assets or other assets may be stipulated as a condition for restructuring the account, if under the TEV study the account is likely to become viable on hiving-off of non-core activities and other assets. For restructuring of dues in respect of listed companies, lenders may be abinitio compensated for their loss/sacrifice (diminution in fair value of account in net present value terms) by way of issuance of equities of the company upfront, subject to the extant regulations and statutory requirements. In such cases, the restructuring agreement shall not incorporate any right of recompense clause. However, if the lenders’ sacrifice is not fully compensated by way of issuance of equities, the right of recompense clause may be incorporated to the extent of shortfall, For unlisted companies, the JLF will have option of either getting equities issued or incorporate suitable ‘right to recompense’ clause. 10vie vii ix, Paragraph 2.2 of RBI circular DBOD.No.Dir.BC.47/13.07.05/2006-07 dated December 15, 2006 on ‘Limits on Banks’ Exposure to Capital Markets’ stipulates certain limits on banks’ exposure to Capital Markets. In partial modification of the circular ibid, it has been decided that if acquisition of equity shares, as indicated in paragraph (v) above, results in exceeding the extant regulatory Capital Market Exposure (CME) limit, the same will not be considered as a breach of regulatory limit. However, this will require reporting to RBI and disclosure by banks in the Notes to Accounts in Annual Financial Statements. In order to distinguish the differential security interest available to secured lenders, partially secured lenders and unsecured lenders, the JLE/CDR could consider various options like: * Prior agreement in the ICA among the above classes of lenders regarding repayments, say, as per an agreed waterfall mechanism; + A structured agreement stipulating priority of secured creditors; * Appropriation of repayment proceeds among secured, partially secured and unsecured lenders in certain pre-agreed proportion. i. The above is only an illustrative list and the JLF/CDR Cell may decide on a mutually agreed option. It also needs to be emphasized that while one bank may have a better security interest when it comes to one borrower, the case may be vice versa in the case of another borrower. So, it would be beneficial if lenders appreciate the concerns of fellow lenders and arrive at a matually agreed option with a view to preserving the economic value of assets. Once an option is agreed upon, the bank having the largest exposure may take the lead in ensuring distribution according to agreed terms once the restructuring package is implemented. As regards prudential norms and operational details, RBI's guidelines on CDR Mechanism, including OTS, will be applicable to the extent that they are not inconsistent with these guidelines. Wl31 3.2 33 34 3.5 3.6 37 3. SCRUTINY BEFORE CDR REFERENCE/APPROVAL Referring Institution (RI) should ensure prima-facie viability of units at the time of submission of Flash Report/ Final Report, Wherever necessary TEV study from independent reputed agencies be conducted while drafting the final CDR package. RI/MI may also examine the possibility of change of management while drafting the final CDR package. If the case has been found to be adversely affected due to incompetent management of the Company or where diversion/misuse of funds has taken place, change of management should be the first option. Wherever necessary and specially in cases of diversion of funds, forensic audit/ special investigative audit may be got carried out by the MI. Minimum promoters’ contribution in all cases would be 25% of lenders’ sacrifice or 2% of restructured debt, whichever is higher. However, since regulatory guidelines is higher of 20% of lenders’ sacrifice or 2% of restructured debt (which has to be brought upfront), contribution beyond this amount may be permitted to be infused within a period of one year from the date of approval of the package. Conversion of debt into preference shares is not desirable and should be the last option. Instead of preference shares, instruments such as convertible bonds having security may be insisted upon. Wherever conversion is necessary it should be into equity with a view to attaining majority shareholding (including pledged shares) which will benefit in effecting change of management, if and when required. Conversion of debt into equity may be agreed in the case of listed companies. It should be avoided in case of unlisted companies. However, in exceptional cases it may be allowed with mile-stone based listing. Recompense amount should be estimated at the time of approval of package and should form part of the same, Subsequently, actual recompense amount should 1238 39 3.10 311 3.12 3.13 314 be calculated every year and form part of mandatory disclosure as Contingent Liability in the audited financials of borrower companies. Rate of interest for all facilities including FITL/WCTL should be minimum Base Rate. ‘Monetisation of non-core assets in time bound manner should be stipulated in all cases. Utilisation of sale proceeds should be captured in the scheme preferably towards reduction of debt to that extent. Wherever feasible, the Lead Bank/MI should nominate a director on the Board of the Company. For reckoning of ‘restructured debt’ for the purpose of calculation of promoter contribution, total outstanding under fund based & non fund based facilities as on COD should be considered. The term ‘Upfront’ in relation to promoter contribution shall mean within a period of 120 days from date of approval by CDR EG including 30 days for lenders to convey their approval to borrower. 10% cap for conversion of debt in to equity introduced by RBI on May 30, 2013 applies to upfront conversion only. Existing conditions regarding right to future conversion, viz. i) right to convert entire amount of FITL /WCTL at anytime during the currency of the CDR package and ii) right to convert into equity upto 20% of the term debt outstanding beyond 7 years, is beyond this cap of 10%. Flash reporis/Final Reports should contain complete details of promoters’ share holding, names of all promoters and specify the promoters whose personal / corporate guarantees are stipulated. Lenders need to ensure pledge of promoters’ shareholding and execution of personal and corporate guarantees (subject to compliance of provisions of Companies Act 2013/SEBI Guidelines) before implementation of approved package. As regards creation of other security, since it is not a condition precedent to implementation of package, lenders need not approach CDR for extension of time but should be guided by their internal guidelines. 133.15 3.16 3.17 3.18 3.19 3.21 41 42 A holistic view of the borrower group should be taken in all cases where the borrower has more than one company. The flash report /final report should indicate the exposure to group / associate companies, strength of management, financial position of the group, total group net worth, equity commitments and cash flows. Corporate guarantees given by borrowers in favour of their subsidiaries / group companies to be mentioned, discussed and their likely impact to be explored in the final package. Final reports should clearly indicate whether or not the amounts paid by the borrower post COD towards servicing debt would be refunded and lenders should invariably adhere to the treatment indicated for such amounts. All lenders to send clear mandates well in time so that minutes may be finalized within 7 working days from the date of meeting. All lenders to implement the CDR package within stipulated time frame once it is approved and all legal cases to be withdrawn. MIs to review all cases where terms of approval have not been complied beyond 120 days from the date of approval and inform CDR EG. Mls to review compliance of the condition regarding publishing of recompense amount by the borrowers in their audited financials and inform CDR EG. 4 FINANCIAL VIABILITY PARAMETERS: BENCHMARK LEVELS In order to have standardization/ uniformity in assessment of viability of cases referred to CDR, all restructuring packages brought before CDR EG should incorporate a section on financial viability covering the financial parameters referred to in Annexure I. However, it may be mentioned that CDR-EG has powers to decide acceptable levels on a case-to-case basis, In Section/ Chapter XI of the Final Restructuring Proposal wherein "Profitability Projections & Viability" are discussed, an additional paragraph should be included indicating the following viability parameters: 1443, 44 51 (i) Break Even Point (operating and cash) (BEP) (ii) Return on Capital Employed (ROCE) (ii) Internal Rate of Return (IRR) (iv) Cost of Capital (v) Loan Life Ratio (LLR) The guidelines contained in Annexure I should be kept in view while calculating, the above financial parameters. Also, the viability parameters should be compared with the industry averages and suitable comments should be incorporated in the Final Restructuring Package. Additionally, capacity utilization, price realization per unit and Profit before Interest, Depreciation, and ‘Tax (PBIDT) of the borrower-corporate should be compared with the relative industry averages. In the event the indicators are not in consonance with the viability benchmarks or industry averages, suitable qualitative comments should ‘be incorporated justifying the variations. Any Final Restructuring Proposal without the above aspects will not be taken up for discussion at the CDR EG. 5. CATEGORY I & II UNDER CDR SYSTEM Category I The Category I CDR system is applicable to accounts, which are 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 lenders (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 lenders. 155.2 @ a) 61 Category II ‘There have been instances where the projects have been found to be viable by the lenders but the accounts could not be taken up for restructuring under the CDR system as they fell under ‘doubtful’ category. Hence, second category of CDR would be there for cases where the accounts have been classified as ‘doubtful’ in the books of the lenders, and if a minimum of 75% of creditors (by value) and 60% creditors (by number) satisfy themselves of the viability of the account and consent for such restructuring, subject to the following conditio It will not be binding on the creditors to take up additional financing worked out under the debt restructuring package and the decision to lend or not to Iend will depend on each bank/FI separately. In other words, under the second category of the CDR mechanism, the existing loans will only be restructured and it would be up to the promoter to firm up additional financing arrangement with new or existing creditors individually. ‘All other norms under the CDR mechanism such as the standstill clause, asset classification status during the pendency of restructuring under CDR, etc,, will continue to be applicable to this category also. 6 ELIGIBILITY CRITERIA In terms of RBI guidelines on CDR Mechanism, corporates with aggregate outstanding exposure of Rs.10 crore and above are eligible for restructuring under CDR System. Reference to Corporate Debt restructuring System could be triggered by: Any one or more of the creditors who have minimum 20% share in either working capital or term finance, or By the concerned corporate, if supported by a bank or financial institution having stake as in (i) above. 166.2 63 64 BIFR CASES The guidelines also allow restructuring of large-value BIFR cases for restructuring under the CDR system if specially recommended by the CDR Core Group. As per the Core Group decision, one of the eligibility criteria for taking up BIPR cases for restructuring under CDR Mechanism is minimum cut-off limit of Rs.15 crore of aggregate outstanding exposure of Banks/Fls. The exposure would exclude equity and preference shares subscribed to by Fls/Banks, Details of eligibility criteria, financial parameters, etc. to be complied with in respect of BIPR cases are given in Annexure IL. In case regulatory benefits are to be availed for such BIFR cases, then regular financial parameters applicable to normal cases would be applicable to such BIER cases also, in addition to the stipulation that Profit After Tax should be positive in 5 years. Suit Filed Cases ‘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). Wilful Defaulters RBIin its guidelines on CDR mechanism has stipulated as under ‘While corporate 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 765 7A 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. Non-cooperative Borrower. A non-cooperative borrower is broadly one who does not provide necessary information required by a lender to assess its financial health even after 2 years; or denies access to securities etc, as per terms of sanction or does not comply with other terms of loan agreements within stipulated period; or is hostile / indifferent / in denial mode to negotiate with the bank on repayment issues; or plays for time by giving false impression that some solution is on horizon; ot resorts to vexations tactics such as litigation to thwart timely resolution of the interest of the lender/s. The borrower will be given 30 days’ notice to clarify their stand before their names are reported as non-cooperative borrowers. In view of the above, details of eligibility criteria to be followed in respect of cases of wilful defaulters/non-cooperative borrowers ete. are given in Annexure m 7. BORROWER CLASSIFICATION FOR STIPULATION OF STANDARD TERMS AND CONDITIONS It is observed that borrower-Corporate get into a stress situation because of various external and internal factors. The restructuring schemes are accordingly formulated envisaging various actions on the part of the borrowers and participating lenders. Based on experience and various features of the borrower- corporate and their promoters/ sponsors, the borrower-corporate are categorized into four Classes for the purpose of stipulation of standard terms & conditions under the CDR Mechanism. The classification is as under: 1872 73 74 Borrower Class 'A': Corporate affected by external factors pertaining economy and Industry. Borrower Class 'B': Corporate/ promoters affected by external factors and also having weak resources, inadequate vision, and not having support of professional management. Borrower Class 'C': Over-ambitious promoters; and borrower-corporate which. diverted funds to related/ unrelated fields with/without lenders' permission. Borrower Class 'D': Financially undisciplined borrower-corporate. The classification of each borrower-corporate shall be decided at the meeting of the CDR Empowered Group (EG), whereat the Final Restructuring Proposal is approved. The standard terms and conditions applicable to different classes of borrowers are set out in Annexure - IV. The Referring Institution should incorporate all applicable standard terms & conditions in the restructuring package, besides special conditions deemed necessary in specific cases. In case it is felt that a particular condition need not be stipulated or should be suitably modified in a particular case, appropriate justification should be given in the Final Report. In case changes in standard condition are envisaged after approval of the final restructuring proposal, then the same may be referred to CDR EG for approval and subsequent modification of LOA, As per the Debtor-Creditor Agreement (DCA) signed between the lenders and the borrower for CDR purpose, it is obligatory on the part of the borrower to abide by the terms of the package once it is approved by the CDR EG with super- majority. In order to ensure transparency, better compliance and expeditious implementation of the package, it is necessary that the borrower is fully aware of terms and conditions of the package as also special conditions stipulated therein, 1981 8.2 83 84 v 8. DECISION PROCESS IN CDR SYSTEM Allloligible cases of restructuring scheme, on receipt of final scheme along with required reports, will be placed at a duly convened meeting of CDR-Empowered Group after giving reasonable notice, to the Lenders and to the Eligible Borrower for discussion/approvals/views/ mandates ete. ‘A decision of the CDR Empowered Group relating to prima facie feasibility and/or final approval of a Restructuring Scheme shall be taken by a Super- Majority Vote at a duly convened meeting, after giving reasonable notice, to the Lenders and to the Eligible Borrower. In case any change/alteration/ modification to the Approved Restructuring Scheme is required, the Referring Lender/CDR Cell shall refer the same to the CDR Empowered Group and the decision of the CDR Empowered Group relating to such changes/alteration/ modification shall be taken by a Super- Majority Vote at a duly convened meeting, after giving reasonable notice, to the Lenders and to the Eligible Borrower. ‘The Standing Members in the CDR Empowered Group will not have any voting rights in respect of the matter specified in section 81, 8.2 or section 83 unless the institution they represent is also a Lender to the Pligible Borrower. [Super-majority Vote as above mentioned is defined as follows: “Super-Majority Vote” shall mean votes cast in favour of a proposal by not less than sixty percent (60%) by number and seventy-five percent (75%) by value of the aggregate Principal Outstanding Financial Assistance as on cut off date] Lenders not having mandate at the time of CDR EG meeting could furnish their stand shortly after the meeting but not later than the next meeting and their stand if received by then should be taken into account for voting, and Lenders not furnishing their stand before the next CDR EG meeting should be excluded from voting. In certain matters like right of recompense, pre-payment premium, sharing of securities etc. (for original CDR debts) in which only the original CDR lenders’ 2085 @ (ii) interests were required to be protected, the exposure of new lenders in the account should not be included for counting 75% by value and 60% by number of members for super majority vote, since after considering the voting power of new lender(s), the decisions in the above matters would get affected. Inall other matters, exposure of all the CDR lenders, as at the end of previous quarter, should be taken for the purpose of voting. Once the Monitoring Institution presents the restructuring proposal and has established the need for additional exposure and has been approved by CDR EG, the same must be followed by all the participating lenders in without any deviation. Mandates conveyed by lenders should be clear (Agreeable/ Not Agreeable) Conditional mandates and mandates not agreeing for need based additional exposures would be treated as negative votes in respect of final packages. ‘Communication of Decision of CDR Empowered Group (EG): To avoid delay in communication of decision of CDR Empowered Group after approval of restructuring package, following procedure is considered for the issuance of Letter of Approval (LOA): CDR cell shall issue LOA/convey the decision of CDR EG to the lenders on approval of the minutes of CDR EG by the Chairman of CDR EG, with a statement that LOA/decision of CDR EG is subject to confirmation of minutes at the ensuing CDR EG meeting and any modification taken place at the time of confirmation minutes would be advised separately. On confirmation of minutes of CDR EG, the amendments, if any, in the LOA/decision of CDR EG would be conveyed to the lenders and final LOA/etter conveying decision of CDR EG would be issued to the lenders and the company. In case LOA/ decision of CDR EG consists of refinancing of debt/ settlement from the funds of private strategic investors, the date of issuance of final LOA/ decision of CDR EG to the company after confirmation of minutes of CDR a86 87 91 @ @) (iii) (iv) EG, may be treated as the reference date for the purpose of outer time limit for refinancing/settlement of debt as stipulated in CDR EG decision. In some cases, implementation of debt restructuring package and compliance of terms and conditions under the package like creation of security, opening of TRA account ete are delayed on account of large number of lenders, especially lenders having exposure less than 2% or so. Generally such lenders are either absent or do not have mandate at CDR EG meeting which delays in arriving at decisions due to the no availability of super majority 60% by number. Where the total number of lenders is more than ten, settlement/payment of dues to the lenders having small exposures less than 2% may be considered, if the cash flows of the company permits the same and or if funds could be arranged by the company for the purpose. By reducing the number of lenders, implementation of the package could be smoother and compliances of terms and conditions including security creation could be expedited. ‘The transaction-specific members are also permitted to attend that part of CDR Empowered meeting pertaining to its case and also providing agenda/ minutes of CDR Empowered Group Meetings pertaining to the case specific. 9, HOLDING ON OPERATIONS The HOO is basically a short term measure to accommodate the genuine and legitimate business needs of potentially viable units: During HOO, the outstanding level (FB+NFB) as on the date of reference/JLF formation date should be maintained. The borrower-corporate should confine its banking facilities to CDR lenders only in order to ensure financial discipline. The interchangeability between FB and NEB limits to the extent of the outstanding level as on the date of reference/JLF formation date may be allowed. Withdrawal to the extent of credits should be allowed during HOO irrespective of Drawing Power (DP). 229.2 The members of CDR system are required to observe the above mentioned operational guidelines during implementation of the package. It may, however, be noted that in case there arises any conflict between these operational guidelines and RBI guidelines, RBI guidelines shall prevail. 93 On admission of the Flash Report/ in JLF route after determining restructuring as CAP, the borrower should open a current account with the MI to be designated “Pre-TRA” account. The procedure would be as under: () The borrower should open a Current Account (to be designated Pre-TRA account) with the MI immediately upon admission of flash report/ in JLF route after determining restructuring as CAP. All credits should be routed through this account only. (@) All operational accounts of the borrower such as cash credit account / overdraft account should immediately be frozen for the purpose of credits. (iil) Self liquidating advances like BP / BD would not be covered under the Pre-TRA account and the transactions pertaining to such facilities would continue with the respective lender (iv) The lender operating the pre-TRA account shall not have the right of general or specific lien on account balances. Such lender may only recover pre-determined charges for operating such an account. (v) The Pre-TRA account shall be a credit account with no stipulation of minimum balance. (vi) Every Flash/ Final report should contain estimated credits and cash budget for a period of four months, which should include the operational expenses like payment of salaries/wages, rent, statutory dues, purchase of raw material, payment towards utility bills etc and other debits permitted by the lenders. (vii) Every lender while obtaining sanction for admission of flash report/ in JLF route after determining restructuring as CAP, shall also seek sanction to authorise opening of Pre-TRA account with Ml. 23(viii) Debits on account of critical payments required to maintain asset classification as on date of reference/JLF formation date may be paid through this account, provided the same is clearly mentioned in the flash/final report: (ix) After date of reference, all forced debits like interest, instalments, devolved LCs and invoked BGs shall be accounted for with respective lenders only. No amount shall be debited to the new account. (x) Increase of any exposure by way of funded limits or non-fund limits beyond the outstanding on reference date/JLF formation date (even though within the sanctioned limits) shall be at the sole discretion of the respective lenders. Such exposure shall not be eligible for any priority status. (x) ‘The Pre-TRA account will be governed by way of a common document to be ‘executed by all the lenders. (xii) The waterfall mechanism for a pre-TRA account would be on similar lines as prescribed for regular TRA accounts. (xiii) In case restructuring is not approved by CDR EG, the balance o/s in the Pre-TRA account shall be distributed amongst all the lenders on pro rata basis. 10. | MONITORING MECHANISM AND FEE STRUCTURE 10.1 Effective monitoring of the progress of implementation of restructuring schemes is critical to the success of CDR Mechanism. Accordingly, a Monitoring Mechanism has been evolved as part of the CDR System. The Mechanism comprises Monitoring Institution (MJ), Monitoring Committee (MC) and external agencies of repute to complement monitoring efforts and also to carry out work of Lenders! Engineer/ Concurrent Audit/Special Audit/ Valuation ete. 10.2 MI would be appointed by CDR EG for effective monitoring of sanctioned cases, CDR Empowered Group can also consider appointment of transaction specific member as Monitoring Institution on a case-to-case basis. 103 CDR EG shall constitute an MC to oversee the implementation of the approved Restructuring Scheme. The MC shall generally comprise one term lender, one 24104 105 10.6 @ i) (iii) working capital bank, one minority lender and the CDR Cell. MC is a recommendatory body and does not have authorisation to accord any approval. All outstanding matters should be brought by the Monitoring Institutions to MC meetings for discussion/resolution so that at the EG meetings, a final view/consensus may be arrived at expeditiously. MC shall report the progress of implementation of the approved Restructuring Scheme to the CDR Cell on a monthly basis in the format provided as Annexure to LOA (Format enclosed at Annexure V). In case of any difficulty in implementation of the approved Restructuring Scheme, MC may approach the CDR EG for necessary direction and/or guidance. In case of any dispute between the lenders, the MC and the Borrower in respect of implementation of the approved Restructuring Scheme, the decision of the CDR EG shall be final and binding on the parties to that dispute. MC shall undertake regular reviews to examine the necessity of continuing the concessions granted. The CDR Core Group may evolve appropriate procedure for monitoring of implementation of the Approved Restructuring Schemes. Following operating practices are to be observed for smooth conduct of MC meetings. Till such time a restructuring package is sanctioned and fully implemented by all lenders, the JLM/MC meetings should be convened by the Monitoring Institutions generally once in a month and thereafter, at least once in every three months. At least one JLM meeting every year should be held at the company’s plant. MC should monitor sanction, implementation and compliance of terms and conditions of the package in a time-bound manner by lenders/borrower- corporate / promoters. MC should monitor the progress and operational/financial performance of the borrower-corporate as per CDR package. 25(iv) MC should ensure completion of documentation such as MRA, TRA, security creation ete in a time bound manner. (v) MC should ensure reconciliation of various figures and work out recompense amount. (vi) MC should discuss the outstanding issues between lenders/borrower- corporate/ promoters and suggest remedial steps for their resolution. (vii) MC should discuss and make recommendation on any other issue as may be brought up by lenders/CDR EG. (viii MC should make recommendations on various proposals presented by borrower-corporate including review of conditions/compliances/ modifications. (x) MC should make recommendations on appointment of Concurrent Auditor/ special agencies/valuers ete. (x) The promoters/company officials and, if considered necessary, the Concurrent Auditors, Lenders’ Engineers also should be invited to the MC meetings as special invitees. (xi) Whenever larger issues such as those relating to sharing of charge, Working Capital tie-up, expansion/modernization, ete are to be discussed, then all participating lenders to the borrower-corporate including consortium members should be invited to the MC meetings. (xii) In cases where transfer/assignment of debt has been made by CDR members in favour of non-CDR entities viz. Asset Reconstruction Companies, NBECs, investor funds etc, unless they have joined in the CDR system on transaction specific basis, then such entities should also be invited to MC meetings. This would enable the existing members and such new entities to understand each other's requirements and would foster greater co-operation so essential for the success of the CDR packages. (xiii) Any proposal for One Time Settlement, partial prepayment to CDR members/non-CDR entities ete. should be referred by the borrower-corporate to 26MC for discussion and recommendation to CDR EG for approval. Only on receipt of CDR EG's approval, such settlements should be done. (xiv) Minutes of the MC meetings should be circulated to all CDR members having exposure in the particular case and to the company also. Besides, copies of the Minutes should also be forwarded to nodal officers of all such CDR members. (xv) All expenses for conduct of MC meetings are to be borne by the borrower- corporate and stipulation to this effect should be included in CDR LOAs. In respect of past cases, the Monitoring, Institutions should advise the concerned borrower-corporate accordingly. (xvi) CDR Cell can also convene Monitoring Committee meeting, where a meeting of Monitoring Committee is not held for more than three months and even after two-three reminders to Monitoring Institution, there is no prompt response and especially when there is any issue required to be discussed amongst the MC members/lenders. CDR Cell shall recover the expenses incurred in this regard from Monitoring Institution/company. 10.7 Fee Structure: In order to compensate the Referring Institution (RI), Monitoring Institution (MI) and TRA Bank for the work done/being done by them, RI might recover one-time fee for preparation of restructuring package, MI might recover annual fee for monitoring functions and TRA Bank might recover annual fee for operating the TRA, w.ef. April 1, 2005, based on AE (FB+NFB) as on COD of CDR lenders as under: Sr. | AE (FB+NFB)| One-time Fee for RI for Fee for MI | Fee for TRA No | involved (Rs. | preparation of Restructuring (Rs. Lakh per Bank (Rs. Lakh) crore) Package (Rs. lakh) annum) | per annum) } 1. | Upto 100 5 20) 5 2.1 101-500 6 “) 5 (7.50)* 7.50 3. 501-1000 50 10 (15)* 10 | | _| 4 | Above 1000 100 15 22.50)" 20 \ if there are more than 5 CDR lenders * if there are more than 10 CDR lenders 27> The MI may recover 50% one-time fee for preparation of Rework Package. > Processing fee may be levied by lenders only on additional exposure by way of TL or WC (other than WCIL/FITL). In case of working capital, additional exposure for the purpose of processing fee would be any amount assessed in excess of sanctioned limits as on COD, > No other fees should be charged by lenders other than mentioned above. 10.8 One time lump-sum contribution: Referring Institutions/Monitoring Institutions shall pay one time lump-sum contribution: (i) One time contribution of Rs4 lakh in respect of each approved case before issuance of LOA (a) At the time of 24 restructuring further one time contribution of Rs.2 lacs to be recovered for the cases referred on or after 01% April 2015. (iii) One time contribution of Rs.1 lakh for each of the existing cases (referred before December 15, 2010). (iv) Rs.2 lakh shall be paid for each case by non-CDR Lender, to become a transaction specific member at the time of signing the Letter of Accession. 10.9 The CDR package could be treated as implemented by a lender if the following conditions are fulfilled: () The package was sanctioned by the lender(s) concerned and effect had been given in the books of account of the lender(s); (i) Promoters’ contribution to the extent envisaged in the package had been brought in; and (ii), MRA was executed binding the lender(s) and the company for compliance of all terms and conditions of the approved package. ‘There should not be any extraneous conditions at the time signing MRA by the lenders, apart from the conditions mentioned in the approved CDR package. 28111 12 113 14 15 116 17 @ i) 11. SHARING OF SECURITIES Sharing of securities between lenders is an important issue, which impacts finalization/ successful implementation of restructuring packages, Existing security pattern should not be altered as far as possible. Unsecured lenders may be given second /subservient charge WCTL/FITL created on account of restructuring to have first pari pass charge on all fixed assets of company Exclusive charge is defined as security charged with one lender and not a group of lenders. Lenders having exchisive charge on a specific asset cannot be forced to share their charge on the said security. However in the spirit of overall success of the restructuring process of the restructuring package, the exclusive security may be pooled. In the event of sale of exclusive security by any lender, the excess sale proceeds if any, after meeting out liability against the said security to be deposited in TRA and its appropriation will be decided by CDR-EG. While security sharing is important for implementation of CDR packages, continuity of a viable CDR package also needs to be ensured by lenders, while insisting on sharing the security. Sharing of security for unsecured loans, If unsecured loans resulted in augmenting long, term resources of the company or acquisition of fixed assets, they can be converted to long term loans. They can be given a second charge or if second charge is already created a subservient charge on the fixed assets of the company. The tenure of such loans should be fixed as per other restructured term loans. If the purpose of such loans cannot be ascertained then the same may be treated as funding for working capital and given a second or subservient charge on the current assets of the Company. Their tenure should be as per the tenure of WCTL sanctioned in the restructured package. 29118 Asset Coverage Ratio (ACR) to be maintained at least at the level of 1 to take care of regulatory provisions. Any shortfall in this to be made good by borrower/ promoter. 119 In order to facilitate expeditious creation of security including pooling of security, the following procedures shall be adopted: (i) Independent Security Agency may be appointed. (ii) No Objection Certificate (NOC) on behalf of CDR members, for creation of security, shall be issued by CDR Cell. (ii) Other formalities necessary for creation of charge shall be completed by the Monitoring Institution. (iv) Pledge Agreement, Deed of Hypothecation etc. to be obtained from the concerned borrowers in prescribed formats shall be communicated to the borrowers by the Monitoring Institution. (v) Assistance of Concurrent Auditor/Valuation Agency may be taken for the purpose of creation of security, and issues arising, thereof may be sorted out by the Monitoring Institution/Committee on priority. (vi) ‘The entire process of creation of charge should be completed within 120 days from the date of Letter of Approval (LOA) issued by CDR Cell. Delay on the part of any lender/borrower shall attract provisions applicable to non-compliant lenders as per the ICA/MRA (wii) Creation of security being critical part of implementation of package, the same should normally be completed within four months from the date of LOA. In case the same is not completed /likely to be completed within the said period, Master Restructuring Agreement (MRA) should be executed with specific time line for completion. MRA should also contain a clause on lenders agreement regarding action to be taken for non-compliance. (viii) Security Trustee /agent can also be appointed for carzying out the task of security creation on behalf of lenders as per the approved CDR package. The other related conditions can also be stipulated to smoothen the process of appointment 30124 @ Gi) (iii) (iy) of security trustee/agent, such as ‘Power of Attorney /letier of authority by the borrower to security agent/trustee for creation security in terms of approved CDR package’, ‘recovering all the charges for appointment of the security agent/trustee and fees for services rendered from the borrower’ and ‘to execute inter-se Agreement between the lenders and the company apart from security trustee Deed’. 12. CONVERSION OF DEBT INTO EQUITY In order to discourage prolonged restructuring periods as also requests by the borrowers to extend the repayment periods further due to various reasons, a standard clause to enable the lenders to convert a part of the amount of principal outstanding beyond seven years from the date of restructuring into equity should be stipulated as under. This would also provide an opportunity for the lenders to share the upside. Lenders shall have the right to convert up to 20% of the term loan outstanding beyond seven years into equity at any time after seven years from the date of Letter of Approval issued by CDR Cell. Such conversion shall be as per the guidelines issued by RBI and Securities & Exchange Board of India (GEBI) from time-to-time/or as per the applicable loan covenants. Entire amount of FITL/WCTL to be converted to equity at the option of the lenders. In the event all londers or any of the lenders exercise their right to sell the shares issued in terms of the conversion clause, the first right of refusal to buy back the shares shall lie with the promoters, In such case also the conversion would be as per SEBI guidelines or applicable loan covenants. ‘As CDR deals with only corporate debt, any change in the terms of existing preference share capital into other equity/equity related. instruments will not 31) 122 @ (i) ii) (ey) 123 normally affect the CDR package. EG may give approval for such proposals from time-to-time, and this may not be treated as rework of the existing package. Normally, there shall not be any restriction on sale of equity shares acquired by Jenders through conversion option except point (iv) above. Having regard to the merits of converting part of the dues/sacrifices into equity and general experience of share prices of CDR cases, banks might consider conversion into equity on a case-to-case basis adopting the following approach. Conversion into equity will not be compulsory and lenders will have the option to take suitable debt instruments in lieu of equity, keeping in view their internal policy guidelines. Such instruments shall have zero/nominal interest, shall be subordinated in security vis-a-vis secured assistance, and repaid only after repayment of existing loans and other assistance as per the CDR package. The zero/nominal interest rate on such instruments shall be reviewed after three years from the date of Letter of Approval issued by CDR Cell and thereafter annually having regard to the profitability of the company. In the event a decision is taken to charge higher rate of interest, borrowers may be allowed to prepay the zero/nominal coupon instrument, if they so desire. ROR on such debt instrument in case of good performance may be demanded by CDR lenders. Conversion of the defaulted amount or outstanding amount of long term zero/nominal interest instrument into equity shall be in terms of SEBI guidelines/loan covenants, as may be applicable. The banks should decide on the issue regarding convertibility (into equity) option as a part of restructuring exercise whereby the banks / financial institutions shall have the right to convert a portion of the restructured amount into equity, keeping in view the statutory requirement under Section 19 of the Banking Regulation Act, 1949, (in the case of banks) and relevant SEBI regulations. 3213, ADDITIONAL FINANCE AND SHARING THEREOF Any additional exposure over and above the exposure on the Cut-off-Date will be considered as additional finance. ‘The RBI guidelines on CDR Mechanism make it mandatory that additional finance is shared pro-rata by all lenders in Category-I ie. Standard and Sub- Standard cases. Keeping in view the fact that the issue of additional finance involves end-use of funds, sources of finance and priority status for Term Loan and Working Capital, the following stipulations are made: The sources of additional finance should be tied up on pro-rata (outstanding of CDR lenders as on COD) basis, net of promoters’ contribution and debt which promoters commit to arrange from other lenders (both CDR and non-CDR) As regards end-use of funds, only the essential expenditure should be covered which, inter-alia, includes capital expenditure on balancing equipment, marginal expansion/ modernization, de-bottlenecking, meeting cash losses, VRS/Statutory payments, clearance of pressing creditors and long term margin for fresh WC ete. ‘These are essential for achieving the projected cash flow for viability of a package. Need Based Working Capital - Assessment, Sanction and Disbursement: Lenders taking up additional WC would be allowed priority recovery equivalent amount of FITL/WCTL (as principal amount of WC does not get recovery unlike Term Loan). All Lenders to consider need-based finance as per the approved restructuring package. The respective Referring Institution (RI)/ Monitoring Institution (Mil) should specify the pro-rata sharing of additional finance by the lenders in the final restructuring package. Lenders to sanction and release need-based working capital without adding any onerous condition thereto/making it contingent on some happenings, once it is approved by CDR EG. 33d) While deciding the water-fall mechanism in the operations of TRA, Term Loan installments of working capital lenders would get priority to the extent of additional working capital facilities extended by them, in case there is no outstanding balance of WCTL & FITL. (iv) Assessment of Need Based Working Capital and factoring of the same in Final Restructuring Package: The guiding principles for assessing and factoring of Need Based Working Capital (WC) in the Final Restructuring Package are as under: (a) At the time of preparation of scheme, the company should submit CMA data to - lead bank/ JLF convener (or the banker having highest exposure in WC limits in case of multiple banking arrangement) for expediting the assessment of WC limits. (b) The assessment of WC should not be delayed on account of the non-availability of the latest audited financials. If latest audited statements are not available, WC should be based on provisional / unaudited financials. (©) WC limits so assessed should be incorporated in the Final Report and should be extended by CDR lenders in proportion to their outstanding as on COD (d)In case of multiple banking arrangements, it should be mandatory to form consortium at the time of CDR stage itself. (€) The lender should sanction their share of WC limits without waiting for sanction of the share of WC limits by other lenders. (In respect of release of WC limits, a definite time frame should be decided for tie up of funds by all the lenders as per package. (g) In case enhancement in WC limits by a lender is not possible on account of prudential exposure norms, an alternate tie-up arrangement should be decided at the time of Final Report itself. (h) Where asset classification is subsequently upgraded on account of satisfactory performance, the lead WC lender (or individual WC lenders under multiple banking arrangements) should reassess/release the WC requirement (sharing of 34the same being decided by WC consortium/CDR EG) within a period of three months after the up-gradation of the account. The lender may consider sanction of enhanced WC limits even at market related rate. ( The other Commercial Banks, which had extended only Term Loans, may be persuaded to share enhanced WC requirement, to the extent possible. Alternatively, they may be persuaded to provide short-term loan/corporate loan to shore up Networking Capital. () The WC lenders while sanctioning their share of WC limits should not add any conditions beyond the conditions deliberated and approved by CDR EG. (k) On carving out of WCTL, the WC limits should not be restored to earlier limits, but should be sanctioned/released as per the fresh assessment of WC. Tt may be noted that in case there arises any conflict between these guiding principles and RBI Guidelines, RBI guidelines shall prevail. (v) Need based WC for first year should be assessed and incorporated in CDR package. a) Lenders to give commitment for need based WC limits for the second year of operations. b) Even though commitment of need based WC for the second year will be given at the time of final package, actual assessment and disbursement to be based on assessment by lead bank/MI upon satisfactory compliance of terms of package by the borrower. ©) If 75% tie-up of assessed WC limits is in place, then lenders who have already sanctioned their respective share in WC may release their limits instead of waiting for 100% tie up. ) Lenders failing to sanction/disburse WC facilities will not get TRA benefits till release of their respective share of WC limits. e) Enforcement mechanism as per Section 13 of ICA to be imposed on lenders who do not follow CDR guidelines in regard to sanction and disbursement of WCneeds within a period of two months from the teceipt of assessment note from ead bank. (vi) Priority in repayment should be given to additional finance provider, both the TL/WC over the existing lenders in TRA as per CDR policy on priority. If additional finance involves enhancement in regular WC limits, the same could be given in the form of short term loan (STI) by institutions/lenders such as IFCI, IDFC, etc, which are not in a position to offer regular WC limits due to the nature of their business. However, redemption of such STL would be done by the company by arranging for replacement finance. (vii) Security support to WCTL/FITL of banks by way of pari-passu first charge on fixed assets should be made available as per current CDR guidelines. However, FG may be given flexibility on deciding of the same on case-to-case basis with 100% agreement of all members for variation, if any. (viii) In case of additional exposure in the form of non-fund based facilities as enhancement for the first year, the same would be shared by all CDR lenders involved in the package, on pro-rata outstanding as on COD or risk and revenue sharing basis. (i)_Exit option - (a) Under the Corporate Debt Restructuring (CDR) mechanism, in terms of RBI circulars - paragraph 5.5.1 of Annex 4 to “Master Circular ~ Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances’ dated July 1, 2014, a creditor (outside the minimum 75 per cent and 60 per cent) who for any internal reason does not wish to commit additional finance will have an option. At the same time, in order to avoid the "free rider" problem, it is necessary to provide some disincentive to the cteditor who wishes to exercise this option. Such creditors can either (a) arrange for its share of additional finance to be provided by a new or existing creditor, or (b) agree to the deferment of the first year's interest due to it after the CDR package becomes effective. The first year's deferred interest as mentioned above, without 36compounding, will be payable along with the last instalment of the principal due to the creditor. (b) Further, paragraph 5.5.2 of the Annex 4 of the RBI Master Circular ibid prescribes that the exit option will also be available to all lenders within the minimum 75 percent and 60 percent provided the purchaser agrees to abide by restructuring package approved by the Empowered Group. The exiting lenders may be allowed to continue with their existing level of exposure to the borrower provided they tie up with either the existing lenders or fresh lenders taking up their share of additional finance. (c) Ithas been decided that banks, irrespective of whether they are within or outside the minimum 75 per cent and 60 per cent, can, henceforth, exercise the above exit option for providing additional finance only by way of arranging, their share of additional finance fo be provided by a new or existing creditor. The other provisions (paragraph 5.53 of Annex 4 of the RBI Master Cixcular ibid) of extant exit options, ie,, to exit from the package by selling their existing share to either the existing lenders or fresh lenders will continue to remain in force. (a) In order to bring more flexibility in the exit option, One Time Settlement can also be considered, wherever necessary, as a part of the restructuring package. If an account with any creditor is subjected to One Time Settlement (OTS) by a borrower before its reference to the CDR mechanism, any fulfilled commitments under such OTS may not be reversed under the restructured package. Further payment commitments of the borrower arising out of such OTS may be factored into the restructuring package. 43.2 Actual Working capital (WO) irregularity as on Cut-off date/ Stock Audit Report date only should be carved out by the respective banks into Working Capital Term Loan (WCTL) and not on pro-rata basis. Individual aberration pertaining to WC irregularity subsequent to Cut-off date, would be dealt with by the individual bank separately. In respect of WC irregularity due to LC devolvement and/or invocation of BG on account of specific reasons, CDR Empowered Group would take a view based on the extant guidelines. 37133 @ « (iil) () @) (vi) ‘The approach for priority for additional finance under CDR would be as under: Superior status will be accorded to any fresh assistance extended to the corporate as part of the package towards minimum required capital expenditure, pressing creditors, VRS, etc. In the case of WCTL and FITL (past & future) of working capital, priority claim will be limited to the extent of fresh working capital exposure envisaged at the time of approval of the package. In case fresh sanction/release of WC is more than WCTL component then priority will be limited to WCTL/FITL component. Unutilized sanction of working capital will not qualify for preferential claim. Any enhancement in WC pursuant to CDR package as a part of need-based assessment will be considered as additional finance and enjoy priority as mentioned above. Further, WC servicing will have priority in TRA as per the waterfall mechanism in case pooling of fixed/current assets is not envisaged. “Wherever such pooling is involved, the cash flow will be shared equitably. There have been cases of expansion/ modernization and plans of future capital expenditure not envisaged in the original package. These plans are normally in the nature of improving viability, stabilizing the cash flow, making the corporate more competitive and overall reducing the risk for lenders. Some such schemes involve application of existing cash accruals as margin for capital expenditure with the approval of EG. Whenever Category-II CDR cases, where sharing of additional assistance is not amandatory, come up with expansion plans then negotiated priority in cash flow in favour of new lenders may be justifiable to attract them. EG may, therefore, consider giving priority on a case-to-case basis and, if justified, on the basis of its need for continuing viability of the package and improving possibility of acceleration of payments, etc. The EG may also take into consideration the need for attracting new set of lenders, specially for Category- II CDR cases. Replacement financing raised by companies for OTS with existing lenders would qualify the new lenders to step in the shoes of the existing lenders. Accordingly, 38141 151 @ if original lenders’ debt did not have priority status then the new lenders also will not get it. EG may, therefore, accord priority status in cash flow in different ways in different circumstances specially where dealing with BIFR/ doubtful cases or cases where fresh investment by strategic/stressed funds is envisaged. 14, PAYMENT PARITY The extent of recovery of dues from the borrowers before the date of reference to CDR has been a contentious issue. While lenders who are not able to recover as much as others, generally demand that the package be prepared in such a way that parity was brought about with such lenders who had recovered higher dues before the date of reference to CDR, the lenders who had recovered higher dues, feel that this would act as a disincentive for efficient recoveries by some lenders. Taking into account the fact that it would not be practicable to re-open the issue of past recoveries made by some lenders and to bring all lenders at par before restructuring, any disproportionate recoveries after the date of reference only shall be corrected in such a way that all the lenders are at par. 15, TRA: TREATMENT FOR INTEREST ON WC AND TERM LOAN (TLWCTLHFITL) - TREATMENT IN TRA Extent of recovery of dues from the cash flow in the TRA has been an issue between the lenders. Interest on the working capital is paid first as the same is treated as part of operational expenses. In normal times, both WC lenders and term lenders get their interest payments. However, in case of shortfall in cash flow, the term lenders do not get any payment. In order to take care of such concerns, the following approach should be adopted: In all existing and future cases, where pooling of security covering ‘TL/WCTL/FITL and entire WC (FB/NEB limits) is being implemented/ will be implemented and security will be shared pari passu on all fixed assets and 39(ii) 15.2 161 current assets, then cash flow shall be shared equitably for payment of interest on WC and TL/WCTL/FITL. In all existing and future cases, where such pooling of security is not envisaged (ie. WC- EB/NFB- is secured by current assets and TL/WCTL/FITL is secured by fixed assets separately), the present system ie. priority for payment of interest on WC, followed by interest on TL/WCTL/FITL in TRA waterfall, shall continue. Opening of Pre-TRA & TRA account should be expedited in all CDR cases. It should be operational within one month from the approval of the case. In case TRA arrangement is not created/working properly, the TRA account should be shifted to the next largest banker within 3 months of becoming aware of the problem. 16. PRUDENTIAL & ACCOUNTING ISSUES As per RBI guidelines, the regulatory concession in asset classification and provisioning will be available if there is compliance of six conditions stipulated in RBI guidelines viz. The dues to the bank are “fully secured’. The condition of being fully secured by tangible security will not be applicable in case of infrastructure projects, provided the cash flows generated from these projects are adequate for repayment of advance, the financing banks have in place an appropriate mechanism to escrow the cash flows, and also have a clear and legal first claim on these cash flows. Fully secured: When the amounts due to a bank (present value of principal and interest receivable as per restructured loan terms) are fully covered by the value of security, duly charged in its favour in respect of those dues, the bank's dues are considered to be fully secured. While assessing the realisable value of security, primary as well as collateral securities would be reckoned, provided such securities are tangible securities and are not in intangible form like 40guarantee etc., of the promoter/others, However, for this purpose the bank guarantees, State Government Guarantees and Central Government Guarantees will be treated on par with tangible security. (i) ‘The unit becomes viable in 8 years, if it is engaged in infrastructure activities and in 5 years in the case of other units. (iii) The repayment period of the restructured advance including moratorium period, if any, doesn’t not exceed 15 years in the case of infrastructure advances and 10 years in the case of other advances. (jv) Minimum promoters’ contribution in all cases would be 25% of lenders’ sacrifice or 2% of restructured debt, whichever is higher. However, since regulatory guidelines is higher of 20% of lenders’ sacrifice or 2% of restructured debt (which has to be brought upfront), contribution beyond this amount may be permitted to be infused within a period of one year from the date of approval of the package. 416.2 The term 'bank's sacrifice! means the amount of "erosion in the fair value of the advance", to be computed as per the methodology enumerated in RBI Master Circular. (i) Sacrifices of lenders should be computed from the cut-off date in the package. (i) Margin towards additional working capital / other cap-ex should be in addition to stipulated promoters’ contribution. (ii)a) If promoters fail to bring their share of contribution towards lenders sacrifice within the time limit as per the existing guidelines, the asset classification benefits derived by banks will cease to accrue and the banks will have to revert to classifying such accounts as per the prevailing asset classification norms b) Promoter's contribution need not necessarily be brought in cash and can be brought in the form of de-rating of equity, conversion of unsecured loan brought by the promoter into equity and interest free loans. (iv) Reduction in value of equity from the face value of equity capital owing to de- rating would be treated as sacrifice. a(v) _ Dilution of equity shareholding will not be treated as sacrifice. (vi) Promoters’ contribution could be also by way of unsecured Joans arranged by promoters, However, such unsecured loans should be subordinated to CDR lenders’ dues for payment of interest and repayment of principal. Rate of interest and other terms on such unsecured loans should be approved by CDR EG. (vii) Any contribution brought by the promoters from their own sources after COD shall be reckoned as promoter contribution. MI shall examine utilization of funds and it is to be ensured that no funds are taken out from company for the purpose not related to company’s core business activities after COD. MI to mention the sources & uses of Promoters’ contribution in the final report submitted for approval & same is to be vetted by concurrent auditor. 17, PREPAYMENT OF RESTRUCTURED DEBT 17.1 Some of the corporates whose liabilities. are restructured under the CDR Mechanism, may turn around faster than envisaged and may be in a position to contract loans from outside the existing CDR lenders at lower rates and may be in a position to prepay the existing debts in part or full. The following criteria should, therefore, be adopted for prepayment under CDR: () Prepayment of debt in part or full shall be on the basis of mutual agreement and, subject to approval of CDR EG. (ii) In case of par+-prepayment, the same shall be made to all lenders and in respect of all loans (including WCTL, FITL) on pro-rata basis, irrespective of the interest rate. (iii) Such prepayment should be encouraged and prepayment penalty should not be charged in CDR approved cases whether it is OTS/ Negotiated Settlement (NS); or it is at the instance of lenders pursuant to acceleration clause. 4218.1 18.2 18.2.1 18.2.2 18.23, 18.24 18. | RECOMPENSE CLAUSE The guidelines related to Recompense were issued vide CDR circular No 1/2009- 10 dated March 26, 2010 and CDR Circular No.2/2013-14 dated October 25, 2015, Ordinarily, every package under the CDR involves waivers and scarifies on the part of lenders. It is also the practice under CDR to stipulate a standard Recompense clause in the restructuring package. The guidelines issued by RBI clearly envisage the right of recompense based on the certain performance criteria. For the purpose of the guidelines, ‘Recompense’ means recouping, whether fully or partially, the sacrifice made by the lenders as also waivers/concessions/ reliefs given by. the CDR Lenders to the borrower pursuant to the approved CDR package. Elements eligible for computation of recompense: The following items of waivers, sacrifices, concessions etc. pursuant to the restructuring package will be eligible for computation of recompense amount: Reduction in Rate of Interest: Any reduction in the rate of interest applicable to the borrower will be reckoned for computation of recompense. Funding of Interest at lower rate of Interest: In case the rate of interest on Funded Interest Term Loan (FITL) as per CDR package is lower than the rate of interest applicable to the borrower for principal loan, sacrifice on account of the differential rate will be reckoned for computation of recompense. Conversion of principal/interest dues into non-convertible debt instruments: In case, principal/interest dues are converted into non-convertible debt instrument and the interest rate/ yield on that debt instrument is lower than the rate of interest applicable to the borrower for principal loan (Le. the unconverted liability), sacrifice on account of the differential rate will be reckoned for computation of recompense. Waiver of principalinterest dues: Any waiver of principal/interest dues as per CDR package will be reckoned for computation of recompense. 4B18.2.5 18.2.6 18.3 18.3.1 18.3.2 18.3.3 Conversion into WCTL: In case rate of interest on WCTL as per CDR package is lower than the rate of interest applicable to the borrower for principal loan, sacrifice on account of differential rate will be reckoned for computation of recompense. ‘Additional Finance (both Term Loan and Working Capital): In case rate of interest on additional finance as per CDR package is lower than the rate of interest applicable to the borrower for the loan (term loan or Working capital, as the case may be), sacrifice on account of differential rate will be reckoned for computation of recompense. Elements ineligible of computation of recompense: The following items shall not be taken into computation of recompense amount: Waiver of penal interesi/liquidated damages: Waiver of penal interest/ liquidated damages as on Cut-off date as per CDR package will not be reckoned for computation of recompense. Sacrifices/waivers allowed prior to CDR restructuring: Any sacrifices/waivers allowed by the lender(s) prior to CDR restructuring will not be reckoned for computation of recompense under CDR mechanism. Any undertaking given by the company to a lender for recouping the sacrifices/waivers prior to CDR restructuring, will be outside the purview of CDR system. Conversion of debt into equity/convertible debt instruments: In case part of principal or interest dues are converted into equity/instruments convertible into equity at a future date, the same will not be reckoned for computation of recompense However, if there is no upside i.e. increase in market value of shares vis-d-vis the conversion price at which the debt was converted into equity, the promoter should undertake to buy-back the shares so allotted at the conversion price or reimburse/ recompense for the loss incurred on conversion into equity. In case of optionally convertible instruments, recompense would depend on conversion option exercised by the lender. If the lender does not opt forconversion into equity, the treatment of the debt instrament will be similar to ‘conversion into non-convertible instrument’ - 18.3.4 Reduction in LC/BG commission, etc. Since charging of commission’ on issuance of LCs and BGs is decided by the Working Capital consortium, the recompense on reduction of commission will not fall under purview of CDR. However, any reduction in commission envisaged in the CDR restructuring package will be reckoned for recompense computation. 184 Non-applicability of Recompense: ‘The recompense will not be applicable to following two instances: 18.4.1 Withdrawal of the Package: In case of withdrawal of the package (ic. on account of unsatisfactory performance, non-compliance of conditions, etc), the recompense will not be triggered. In such cases, the restructuring package is revoked and the lender may take action against the company outside CDR forum. 18.4.2 One Time Settlement/Negotiated Settlement: In case of OTS/NS, amount recoverable under OTS/NS is mutually decided by the lender and the borrower and hence, the recompense will not be applicable in such cases. 185 Trigger Events for Recompense: The payment of recompense amount gets triggered in the following circumstances: 185.1 Exit of the Case: The exit of the borrower from CDR mechanism, either voluntarily or at the end of the restructuring period. 1852 Improved Performance: Average EBIDTA for two consecutive financial years is in excess of twenty-five percent of average EBIDTA of the relevant years as per CDR projections, However, in case of improved performance of a company under BIER, recompense amount will be collected only after the net worth becomes positive. 18.5.3 Declaration of Dividend: If the borrower declares dividend in any financial year in excess of ten percent on annualized basis, recompense will be triggered. 4518.5.4 Un Mapped Capex: Irrespective of sources of funds, unmapped capex will trigger ROR, CDR EG may consider and approve critical capex upto 10% of gross block of the borrowing company without triggering ROR. 18.55 Extra- Ordinary Income: - Any windfall profit or excess profit derived from the sale of assets, divestment, success in litigation, etc should also trigger the recompense clause and the quantum of recompense amount should be linked to such amount received by the company. 18.5.6 Liabilities of one of the lenders get refinanced by new lender(s) at the instance of the company: - Right of recompense would be protected only if the lender was forced to exit the company without its consent. 18.6 Methodology of Computation of Recompense Amount: On the occurrence of any of the above mentioned trigger events, the referring/ monitoring institution shall convene a meeting of the Monitoring Committee within a period of one month from the date of occurrence on the trigger event to determine the quantum of the recompense amount payable by the borrower till the trigger date. The quantum of the recompense shall be decided as under: Sr. on ‘Methodology of Recompense computation No. considered by lenders i, ‘ae ‘Waiver [00% of principal waiver should be recovered as Fecompense. ii Paver of interest dues 100% of interest dues waived should be recovered s recompense. iy Reduction of interest [nterest sacrifice should be considered as fate on principal debt flifference in interest as per CDR package and feret based on average of BPLR/BR plus the propriate term premium and credit risk emium of four major lenders (all, if the number f lenders is less than fouz) prevailing as at the of cach financial year (including broken | riod, if any) after the cutoff date or the| | jocument rate, whichever is lower. fv Conversion of debt {in case of conversion of _ principal int Debentures and putstanding/interest dues into debentures and 46Preference Shares ae shares, sactifice in interest/coupon rate hould be computed as per point (iil) above. v. Conversion into FITL Computation of interest sacrifice on FITL should t lower rate of interest_be as per point (iii) above. ‘vi Conversion into WCTL Computation of interest sacrifice on WCTL should t lower rate of interest_be as per point (iii) above. vii. Reduction in commi- Recompense on reduction in commission should ion on LGs/BGs. computed in cases where the restructuring ackage incorporates such reduction in ommission. vil New loans at Only for new loans which were given at oncessional interest foncessional rates and not on market rates could considered for recompense on same lines as eduction in interest rates of point (iii) above. ‘The recompense amount calculated based on the above methodology will be compounded at the average BPLR/BR plus the appropriate term premium and credit risk premium of four major lenders or document rate (effective rate applicable to the sanctioned facility before COD), whichever is lower. Compounding of ROR amount shall be at annual rests and CDR EG can approve acceptance of ROR up to 75% on the basis of supermajority where ROR calculation is strictly as per CDR Guidelines. Deviations may continue to be i referred to Core Group for approval. In any case minimum 75% of the recompense amount should be recovered by the lenders and in case where some facilities under restructuring have been extended below base rate, 100% of the recompense amount should be recovered, 18.7 Recovery of Recompense Amount: 18.7.1 Based on the quantum of recompense determined as per Para 6 above, CDR EG shall decide the form in which recompense amount can be recovered based on cash-flow of the company. Full amount of recompense shall be recovered by way of cash to the extent of Available Cash Surplus (defined at Para 7 (b) below) and 47balance amount shall be recovered in the form of debt instruments/equity or other suitable instruments like preference shares, etc. The debt instrument, issued towards recompense, can be unsecured to avoid deterioration of FACR. The debt instrument shall carry coupon/interest rate at BPLR/BR of respective lender. The repayment of debt instrument will be fixed by the CDR EG at the time of deciding recompense, The individual lender may allow the company to prepay such debt instrument on request of the company. 18.7.2 Available Cash Surplus: Available Cash Surplus will decide the capability of the company to pay recompense amount in cash. The Available Cash Surplus (for each completed year of restructuring) will be calculated as under: Particulars FY20XX Actual [A. | Cash Surplus from Operations Net Profit After Tax ‘Add: Depreciation Add: Miscellaneous Exp. W/off ‘Add: Interest funded during the year (FITL)* Add/ (Less): Deferred Tax Liabilities/ (Assets) ‘Add: Cash Surplus from Investment Activity Sale Proceeds of Investments/Fixed Assets Less: Expenditure on Sale of these Assets Less: Capex (as per CDR approved package) Less: Essential Capex like exigencies on account of breakdown of machinery ete. [described under Para 5 (d)] Less: Debt Servicing Obligations Repayment of FITL | Repayment of Principal Instalments D. | Changes in Working Capital/Cash Equivalents ‘Add/(less): Decrease/ (Increase) in Current Assets ‘Add/(less): Increase/ (decrease) in Current Liabilities Total of Cash Surplus * Since interest, though funded, is treated as expenditure in P & I. account of the (= borrower. CDR EG would vet the changes in working capital/cash equivalents while computing available cash surplus. 48@ w 18.8 | 18.9 From the Cash Surplus as calculated above for each completed year of restructuring (till the year of trigger event for recovery of recompense), following deductions can be made to arrive at AVAILABLE CASH SURPLUS for recompense: ‘Margin requirement for incremental term loan for the next one year (as per the CDR approved package); Margin requirement for incremental working capital for the next one year (as per the CDR approved package). Lender-wise recompense will be computed based on the pro-rata share of sacrifices by the respective lenders. Post - trigger event: On recovery of recompense amount as above, the CDR EG can reset the interest rate to market related rate from the date of trigger event, so that the recompense issue stands dispensed with therefrom. For prospective cases, reset of interest rate shall be from the date of trigger event, while for existing cases (on the date of issuance of this guideline) reset of interest rate shall be from the current date of computation of recompense. Other Related Issues: Calculation of recompense amount should be completed within maximum three months of trigger event. The calculation of ROR should be included within the scope of concurrent audit. Alternatively, the amount could be calculated by statutory auditor of the company. The final restructuring scheme shall incorporate tentative ROR amount. The ROR amount (approx) shall be captured in Audited Financial statements in “ Note to ‘Accounts’ If the borrower delays the payment of recompense amount beyond the time frame decided by CDR EG, it shall be liable to pay interest at the BPLR/ Base Rate of the lender concerned. 4918.10 @ @ (i) 19.1 19.11 ‘After recovery of recompense amount, the lenders shall not be eligible to claim or recover any further amount from the borrower by way of recompense up to that date. In case company’s performance worsens subsequent to its exit by payment of recompense, the company’s request for restructuring of its debts can be considered by CDR EG on merits. Recompense shall be crystallized on occurrence of trigger event and subsequently on recovery of the recompense either in the form of cash or debt instruments, the company will be treated as successfully exited from CDR. However, till company continues under CDR, the lenders will have Right of Recompense. Savings: These guidelines supercede the previous guidelines issued on this subject. The cases settled in the past on the basis of extant policy shall not be reopened. These guidelines shall apply to all cases pending for determination of recompense amount. ‘The exceptional cases, like packages involving change in management for revival of the package and/or any deviation from the above recompense policy, may be referred to the Core Group. 19. OTS/ASSIGNMENT OF DEBTS One Time Settlements (OTS)/Negotiated Settlements (NS) OTS/NS generally involve an element of waivers/scarifies for the lenders in respect of their outstanding debt and basically means offers given by the borrowers based on certain resource-raising programme including equity issue, strategic investment, venture capital, international offering etc. 49.1.2 Such OTS should preferably be completed within three years’ time without affecting other CDR payments. 5019.1.3 EG may allow use of part of internal accruals for OTS on case-to-case basis if such 19.1.4 1915 19.1.6 19.17 forms are attractive from other lenders’ point of view specially with respect to asset coverage, improving margin for WC, improved rating due to better balance sheet etc. OTS for WC Banks should be available for both WC & TL. However, WC banks, if they so desire, might continue with WC facility. On completion of OTS, existing security (incl. collateral security) charged to the outgoing CDR lenders, as also non-CDR lenders should be given to the remaining CDR lenders. In such cases the company may request for release of collateral which might be considered by CDR EG based on conduct of the account/compliances of CDR package etc. and the company should not transfer/assign/encumber them without the prior approval of CDR EG. ‘As regards any security available with outgoing non-CDR lenders, company should undertake that pursuant to OTS payment such security would first be offered to CDR lenders and on completion of OTS a specific request to EG could be made for its release. ‘There have been proposals where replacement financing is being arranged from NBECs, venture capital or External Commercial Borrowings. In such cases, the new lenders will step into the shoes of the outgoing lenders and, therefore, would get same security structure and rights and obligations available under CDR package. Such new lenders would get priority to the extent the debt so zed to meet additional fund requirement as per the CDR arranged is util package. However, the remaining debt arranged for replacing the existing lenders may not be given priority. In cases where debt level in a borrower account is very high, EG on a case-to-case basis, may approve limited priority to such new lender provided replacement debt is on better terms or there are other considerations such as settlement/ legal issues with non-CDR lenders, etc. As far as possible such priority should be avoided. OTS payments should be made out of TRA. St19.18 CDR EG should be informed of the terms of OTS to CDR members as also non- CDR entities. 19.19 A lender shall not be compelled to accept OTS on the basis of a super-majority decision. 191.10 During OTS payment, the case would compulsorily remain under CDR and security position would not be disturbed. This would be subject to eligibility criteria under CDR being complied and if exit of case is not envisaged. 191.11 As every lender under CDR has a right to exit or accept OTS as per the stipulated guidelines, such right need not be separately mentioned in LOA issued by CDR Cell and any such proposal shall be approved by EG on merits, 191.12 On the basis of intended OTS or proposed exit from CDR, no lender should withhold sanction of the approved CDR package and sharing of security, including pooling of security, if it is part of original package. In case the incoming new lender is not comfortable then Master Restructuring Agreeament (MRA) covering critical areas such as management control, invocation of pledge of shares, shareholding pattern and action in case of default need to be finalized. This is particularly relevant for clear understanding regarding co-existence of the two sets of lenders for the success of the package. 192 ASSIGNMENT OF DEBT 19.21 Assignment of debt means transfer of debt at the option of individual lenders, 19.2.2 Lender may transfer or assign, in part or the whole of its outstanding Financial “Assistance. However, if any Reference is made or any Restructuring Scheme is under preparation and/or implementation, such transfer or assignment shall be subject to following: (a) The Lender (Transferor) giving a prior notice to the CDR Cell of the proposed transfer. () The Transferor informing the intended transferee in writing of the current status of the Restructuring Scheme including any previously decided issues not subject 52to renegotiation. Transfer should take place before reference/admission of the case in CDR ot only after four months from the date of issuance of LOA by CDR Cell ie. after implementation of the package. (©) On assignment, the transferee needs to give an undertaking to abide by the package. The transferee would get the same security/rights under the package as were available to the transferor/assignor. (d) mall cases, TRA should be executed in a time-bound manner with transferee as per CDR package. (©) Incase of non-CDR members who are eligible but not joined CDR system so far should get themselves admitted in the CDR System and issue a letter of accession to this Agreement i.e. to execute transaction specific ICA or join the system in the form Part A or Part B provided in Schedule-II, as may be required, 19.2.3 In case the assignment is in favour of a non- CDR member who at present is not eligible to become a member of CDR. In addition to the clause (a) to (d) as stated in Para 19.2.2, the following would be applicable: a. Any lender can assign/transfer debt to any entity who is, at present, not eligible to join CDR. b. It would be preferable if the incoming new entity executes MRA as well, if applicable. 19.2.4 The following aspects should be adhered to while assigning debts to ARCs * If assignment is inevitable after implementation of package, the JLM should be called to discuss the intended transfer and its impact on restructuring scheme and should be intimated to CDR cell and case may be declared as failed and assignment should be done with the knowledge of CDR EG. «If restructuring has been decided as per CAP then banks will not be permissible to sell such assets to ARC, without arranging for their share in additional finance to be provided by new or existing creditor, 5320, | REVOCATION OF RESTRUCTURING SCHEME/ LEGAL ACTION FOR RECOVERY 201 Any CDR lender before initiating action for revocation of restructuring scheme/legal action for recovery in respect of CDR cases must inform the CDR FG about the proposed action and if there is no response from the CDR EG within a period of 60 days or if the limitation period is about to expire (whichever is earlier), the concerned lender may initiate action independently. However, for the sake of good order, the concerned lender must give adequate notice to other participating lenders as well as CDR Cell indicating the likely date of expiry of the limitation period. 21. RE-WORKOUT/RE-ENTRY IN CDR 211 As per the revised RBI guidelines (applicable till March 31, 2015) regulatory enefits would be available to CDR cases only if restructuring is done under CDR for the first time and meets the following criteria () The dues of the banks are fully secured by tangible security. (i) The unit becomes viable in 8 years if engaged in infrastructure else 5 years. (iil) The repayments does not exceed 15 years in case of infrastructure advances and 10 years in case of other advances. (iv) Mininwarn promoters’ contribution in all cases would be 25% of lenders’ sacrifice or 2% of restructured debt, whichever is higher. However, since regulatory guidelines is higher of 20% of lenders’ sacrifice or 2% of restructured debt (which hhas to be brought upfront), contribution beyond this amount may be permitted to be infused within a period of one year from the date of approval of the package. (v) Personal Guarantee is offered by promoter (vi) The restructuring is not repeated restructuring 5422, EXIT OF CASES FROM CDR SYSTEM 22.1. Criteria for Successful Exit 1. After the end of the restructuring period, the borrower-Corporate has to exit from the CDR System. 2. When the financial performance of the borrower-Corporate is more than 25% of the EBIDTA projections for two consecutive years, it will qualify for exit. 3. Any borrower-Corporate secking exit from CDR should agree to make payment of recompense amount as per CDR guidelines. 22.2 Procedure for Exit: ‘The procedure for consideration for exit would be as under: 1. On full repayment/refinance, the company may exit subject to crystallization/ payment of recompense amount. 2. In case of part prepayment, the same shall be made to all lenders and in respect of all loans (including WCTL, FITL) on pro rata basis, 3, Prepayment in any other manner and invoking of recompense amount shall be subject to the approval of CDR EG. 5512 13 14 Annexure - I FINANCIAL VIABILITY PARAMETERS (Lo be included in Final Restructuring Proposals) Return on Capital Employed The Return on Capital Employed (ROCE) reflects the earning capacity of assets deployed. ROCE is expressed as a percentage of total earnings (return) net of depreciation to the total capital employed. ‘Total Earnings’ is PBT plus total interest plus lease rentals. ‘Capital Employed’ is the aggregate of net fixed assets excluding capital work in progress, lease rentals payable, investments, and total current assets less creditors and provisions. Normally, intangible assets are excluded for calculation of ROCE. Having regard to the fact that stressed standard assets as well as sub-standard and doubtful assets are considered for restructuring, it may be possible that fixed assets in such cases might be depreciated to a large extent due to accounting practices although the facilities might not have been utilized. Similarly, interest on loans accrued and fallen due but not paid, might have been used to finance cash losses. In other words, the fund is reinvested in the project. These normally get reflected in accumulated loss, which is treated as intangible asset. Therefore, while working out the total capital employed, suitable adjustment may be made for unabsorbed depreciation and unserviced interest to lenders A minimum ROCK equivalent to 5 year G-Sec plis 2% may be considered as adequate. Debt Service Coverage Ratio ‘The Debt Service Coverage Ratio (DSCR) represents the debt servicing capability of the borrower. In the normal course, DSCR is the ratio of gross cash available to meet the debt-servicing requirement. Gross cash available is the sum of gross cash accrual plus interest on term debt plus lease rentals. Debt servicing 5622 23 requirement is sum of repayment of term debt, interest on term debt plus lease rent payable. Gross cash accrual may not be considered as a true representation of available cash flow to service debt as gross cash accrual does not take into account the actual cash available after netting out the variation in stocks/inventory position [It has to be acknowledged that ‘interest and principal cannot be serviced out of earnings, which is an accounting concept’ | Debt servicing has to be made in cash, Many transactions and accounting entries can affect earnings, but not cash. ‘Therefore, for calculation of DSCR, actual cash available with the borrower should be taken into consideration and accordingly the DSCR calculation for restructured assets should be as under: ‘ACE + total interest excluding interest on WCL + lease rentals Repayment of loans + interest excluding interest on WCL + lease rentals DSCR Available Cash Flow (ACF) will be net cash position during the year (total gross profit plus outside funds if any available less total requirement including build- up of inventory /debtor/normal capital expenditure etc.) repayment of public deposits should be included for calculation of DSCR, The adjusted DSCR should be >1.25 within the 7 years period in which the unit should become viable and on year-to-year basis DSCR to be above 1, The normal DSCR for 10 years repayment period should be around 1.33:1. Gap between Internal Rate of Return and Cost of Funds The Internal Rate of Return (IRR) is computed as the post-tax return on capital employed during the project life based on discounted (net) cash flow method. Cash outflows each year would include capital expenditure on the project and increase in gross working capital. Cash inflows each year would include inflows from the operations of the project each year, recovery of working capital in the 573.2 33 34 @ last year of project life and residual value of capital assets in the last year of project life. While the above definition may be relevant for project finance, for restructured cases, the investment would have already taken place and the fixed assets would have depreciated to a large extent for such existing cases. While the year of restructuring could be considered as the zero year, aggregate of net fixed assets, net working capital and investments could be treated as total assets deployed. Cash inflows would have the same definition as for project finance. Project life should be considered as 15 years irrespective of the vintage of the facilities but depending on economic life. Cost of capital is the post-tax weighted average cost of the funds employed. Since the basic purpose of the restructuring exercise is to recover the lenders’ dues, it is felt that zero cost could be assigned to equity funds (equity and reserves). Cost to be assigned to the debt would be the actual cost proposed in the restructuring package. Calculation of tax shield for the purpose of working out the effective cost of debt funds will be as per usual institutional guidelines ‘The benchmark gap between Internal Rate of Return and Average Cost of Funds should be at least one percent. Extent of Sacrifice ‘The term ‘bank's sacrifice’ means the amount of "erosion in the fair value of the advance", to be computed as per the methodology enumerated in para 11.4.2 (i) of RBI Master Circular dated July 2, 2012. Diminution in the fair value of restructured advances: Reduction in the rate of interest and/or reschedulement of the repayment of principal amount, as part of the restructuring, will result in diminution in the fair value of the advance. Such diminution in value is an economic loss for the bank and will have impact on the bank's market value of equity. 58For this purpose, the erosion in the fair value of the advance should be computed as the difference between the fair value of the loan before and after restructuring, Fair value of the loan before restructuring will be computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to the bank's BPLR or base ratel (whichever is applicable to the borrower) as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring, Pair value of the Joan after restructuring will be computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to the bank's BPLR or base rate (whichever is applicable to the borrower) as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. ‘The above formula moderates the swing in the diminution of present value of loans with the interest rate cycle and will have to follow consistently by banks in future. (ii) In the case of working capital facilities, the diminution in the fair value of the cash credit/overdraft component may be computed as indicated in para (i) above, reckoning the higher of the outstanding amount or the limit sanctioned as the principal amount and taking the tenor of the advance as one year. The term premium in the discount factor would be as applicable for one year. The fair value of the term Ioan components (Working Capital Term Loan and Funded Interest Term Loan) would be computed as per actual cash flows and taking the term premium in the discount factor as applicable for the maturity of the respective term loan components. (Gi) fn the event any security is taken in liew of the diminution in the fair value of the advance, it should be valued at Re-1/- till maturity of the security. This will 595. ensure that the effect of charging off the economic sacrifice to the Profit & Loss account is not negated. (iv) The diminution in the fair value may be re-computed on each balance sheet date till satisfactory completion of all repayment obligations and full repayment of the outstanding in the account, so as to capture the changes in the fair value on account of changes in BPLR or base rate (whichever is applicable to the borrower), term premium and the credit category of the borrower. Consequently, banks may provide for the shortfall in provision or reverse the amount of excess provision held in the distinct account. Other Financial Parameters 1 Break-Even Analysis 11 Break-even analysis should be carried out. Operating and cash break-even points, should be worked out and they should be comparable with the industry norms. 2 Gross Profit Margin 21 Gross Profit or Earnings Before Interest, Depreciation, Tax and Amortisation (EBIDTA) is considered a good measure to compare the performance of a corporate in relation to the industry. Gross Profit Margin (GPM) for the industry as a whole, to which the company belongs, is available in published documents / databases (like 'Cris-Infac’, 'Prowess’ or similar database ventures). Wide variation, if any, of company’s GPM from the industry average would be required to be explained with qualitative information. 22 While GPM is considered as a good indicator of the reasonableness of the assumptions underlying the profitability projections, it is necessary that various elements of profitability estimates such as capacity utilization, price trend and price realization per unit, cost structure, etc. should be comparable to those of the operating units in the same industry. It is also suggested that the company’s past performance for say last 3-5 years and future projections for next 5 years should53 5.31 5.3.2 be given in the restructuring package on the same worksheet to have comparison of sales, sales realization, cost components, GP, GPM, interest cost, etc. Loan Life Ratio Loan life ratio (LR) is a concept, which is used internationally in project financing activity. The ratio is based on the available cash flow and present value principle, Present value of total ACF during the loan life period (including int.* prin.) LLR= a Maximum amount of loan. The discounting factor may be the average yield expected by the lenders on the total liabilities, or alternatively, the benchmark ROCE. This ratio is similar to the DSCR based on the modified method (Actual Cash Flow method). In project financing, sometimes LLR is used to arrive at the amount of loan that could be given to a corporate. On the same analogy, LLR can be used to arrive at sustainable debt in a restructuring exercise as also the yield. A benchmark LLR of 1.4, which would give a cushion of 40% to the amount of loan to be serviced, may be considered adequate. 61Annexure- II BIFR CASES: ELIGIBILITY CRITERIA, FINANCIAL ‘VIABILITY PARAMETERS, AND PROCEDURAL ASPECTS 1. ELIGIBILITY CRITERIA 1. BIER cases which could be included under CDR 1.1.1 Case registered with BIFR but yet to come up for hearing. 1.1.2. BIER has declared the company as sick and ordered workout of DRS. 113. Corporates not having major issues (legal/ concurrent) with statutory authorities and State/Central Government agencies and there is a possibility of such issues getting addressed within three months. 1.2 BIFR cases which should not be considered under CDR 121. Cases for which Special Investigative Audit (SIA) has been recommended by BIER. 1.2.2 Cases where sickness is being contested by way of appeal to AAIFR. 123 Cases where Appeal against the decision of BIFR has been filed by any one of the parties with AAIFR/Court. 2 FINANCIAL VIABILITY PARAMETERS 21 The restructuring scheme should enable the company's net worth to tum positive within a span of 4 years, 2.2 Adjusted DSCR (including cash outflow on account of increase in WC, normal capex etc.) should be around 1.25 and normal DSCR minimum 1.33:1, 23 Reasonable promoters’ contribution of generally around 5 to 10% of the cost of the scheme should be envisaged in the restructuring proposal. Promoters’ contribution should, preferably, be by way of inflow of funds from outside or sales of surplus land/assets. 24 The Corporate’s EBIDTA should become positive in two years and it earns net profit within 4 to5 years. 6225 3.2 33, 35 36 In case regulatory benefits are to be availed for such BIFR cases, then regular financial parameters applicable to normal cases would be applicable, in addition to the stipulation that PAT should be positive in 4to5 years. PROCEDURAL ASPECTS ‘The referring institution should prepare the Flash Report in the CDR format for submission to the CDR Core Group. It should also indicate the compliance position of the stipulated eligibility criteria, In case of any variation/ relaxation, suitable justification should be given for Core Group's deliberation in the overall interest of all concerned. The objective of considering the scheme under CDR should be to sort out issues between Fls/Banks expeditiously so that the scheme can be put in place within 45/60/90 days. As such, proposals involving consent/ approvals from non-CDR members/Government agencies, which are critical for the viability of the company, may not be encouraged. If the scheme envisages sale of assets it should be backed by credible valuation and offers from suitable interested parties so that the scheme can be implemented at the earliest. Such conditions should be acceptable to the corporate/ promoter before the case is referred to CDR, ‘The Flash Report in the prescribed format should be submitted to CDR BG for approving admission of the case to CDR and usual procedure should be adopted thereafter. Restructuring under CDR system will be subject to standard terms and conditions and special conditions as may be stipulated depending on CDR category of the case and the type and nature of the borrower/promoter. The terms and conditions should be discussed with the company/promoter in advance and the same should be acceptable to them. ‘The approval of the restructuring scheme will be subject to final clearance of the scheme by BIFR. After issuance of LOA by the CDR Cell, the scheme should be 6337 38 3.9 3.10 3.11 submitted to BIR by the referring institution/OA so that BIFR approval can be obtained at the earliest and the scheme is implemented. ‘The participating Fls/Banks should obtain approval from their competent authorities within a stipulated period from the date of issuance of LOA by CDR Cell without waiting for BIFR approval. Lenders might implement CDR package after the same is filed with BIFR for approval. Lead / Referring Institution/Operating Agency should file the CDR package with BIFR for approval u/s 17(2) or 17(8) based on LOA issued by CDR Cell, without waiting for sanction by individual lenders. An application should be made by the Referring Institution on behalf of lenders u/s 19A to BIFR agreeing to an arrangement for continuing operations or suggesting a scheme for financial reconstruction soon after approval of the package by CDR EG. In terms of SICA, BIER is expected to give its decision u/s 19 within 60 days. If BIER approval u/s 19A is available, the lenders including working capital banks should release need-based working capital. However, the lenders shall not be compelled if BIFR approval is not in place. CDR BG may consider any deviation in the procedure on a case-to-case basis. There would also be priority in cash flow for such additional funding for working capital lenders as per CDR guidelines. 64Gi) @) ) (vi) Annexure- III (CASES OF WILFUL DEFAULTERS/ NON-CO OPERATIVE BORROWERS: ELIGIBILITY CRITERIA, FINANCIAL VIABILITY PARAMETERS PROCEDURAL ASPECTS: RBI DEFINITION OF WILFUL DEFAULT RBI in its guidelines dated July 1, 2014 (updated upto January 7, 2015) a "wilful default" would be deemed to have occurred if any of the following events is noted The unit has defaulted in meeting its payment/ repayment obligations to the lender even when it has the capacity to honour the said obligations. The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilized the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes. The unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets. ‘The unit has defaulted in meeting its payment / repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/lender. ‘The term ‘unit’ appearing therein has to be taken fo include individuals, juristic persons and all other forms of business enterprises, whether incorporated or not. In case of business enterprises (other than companies), banks/FIs may also report (in the Director column) the names of those persons who are in charge and responsible for the management of the affairs of the business enterprise. Where a banker has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. In case 65@ @ the said guarantor refuses to comply with the demand made by the cxeditor/banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as.a wilful defaulter. It is clarified that this treatment of non-group corporate and individual guarantors would apply only prospectively and not to cases where guarantees were taken prior to this circular. Banks / Fis may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees. MECHANISM FOR IDENTIFICATION OF WILFUL DEFAULTERS ‘A covenant in the loan agreements with the companies in which the banks/ Fis have significant stake, should be incorporated by the Banks/Fls to the effect that the borrowing company should not induct on its board a person whose name appears in the list of wilful defaulters and that in case, such a person is found to be on its board, it would take expeditious and effective steps for removal of the person from its board. It would be imperative on the part of the banks and Fs to put in place a transparent mechanism for the entire process So that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should be ensured that a solitary or isolated instance is not made the basis for imposing the penal action. The transparent mechanism referred should generally include the following: ‘The evidence of wilful default on the part of the borrowing company and its promoter/whole-time director at the relevant time should be examined by a Committee headed by an Executive Director and consisting of two other senior officers of the rank of GM/DGM. If the Committee concludes that an event of wilful default has occurred, it shall isaue a Show Cause Notice to the concerned borrower and the promoter/whole- time director and call for their submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the 66promoter/whole-time director for a personal hearing if the Committee feels such an opportunity is necessary. (iii) ‘The Order of the Committee should be reviewed by another Committee headed by the Chairman / CEO and MD and consisting, in addition, of two independent directors of the Bank and the Order shall become final only after it is confirmed by the said Review Committee. (jv) As regard a non-promoter/non-whole time director, it should be kept in mind that Section 2(60) of the Companies Act, 2013 defines an officer who is in default tomean only the following categories of directors: (a) Whole-time director (b) Where there is no key managerial personnel, such director or directors os specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, o all the directors, if no director is so specified; (c) Every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings and who has not objected to the same, or where such contravention had taken place with his consent or connivance. | Therefore, except in very rare cases, a non-whole time director should not be | considered as a wilful defaulter unless it is conclusively established that LHe was aware of the fact of wilful default by the borrower by virtue of any proceedings recorded in the Minutes of the Board or a Committee of the Board and has not recorded his objection to the same in the Minutes, or, Tl. The wilful default had taken place with his consent or connivance. A similar process as detailed in sub paras (i) to (iii) above should be followed when identifying a non-promoter/non-whole time director as a wilful defaulter, 6731 3.2 42 CASES OF WILFUL DEFAULTER NOT ELIGIBLE UNDER CDR Cases of reported siphoning of funds or misfeasance, fraud, etc. (as one of the reasons for wilful default) are prima-facie not eligible to be covered under CDR. However, the Referring Institution may in consultation with the borrowers, ascertain the facts from the statutory auditors, stock auditor and concurrent auditor or get Special Investigative Audit conducted in this regard and convince itself that such incidence, if any, is not affecting the interest of the lenders on a Iongrterm basis. However, if after due diligence, itis felt that such promoters are not dependable for long term relationship, then in such cases, OTS or change in management would be required to address the issue of wilful default. If both are not possible, such cases should be kept out of CDR CASES OF NON COOPERATIVE BORROWER NOT ELIGIBLE UNDER CDR ‘A non-cooperative borrower is broadly one who does not provide necessary information required by a lender to assess its financial health even after 2 eminders; or denies access to securities etc. as per terms of sanction or does not comply with other terms of loan agreements within stipulated period; or is hostile / indifferent / in denial mode to negotiate with the bank on repayment issues; or plays for time by giving false impression that some solution is on horizon; or resorts to vexations tactics such as litigation to thwart timely resolution of the interest of the lender/s. The borrower will be given 30 days’ notice to clarify their stand before their names are reported as non-cooperative borrowers. With a view to discouraging borrowers/defaulters from being unreasonable and non-cooperative with lenders in their bonafide resolution/ recovery efforts, banks may classify such borrowers as non-cooperative borrowers, after giving them due notice if satisfactory clarifications are not furnished. Barks will be required to report classification of such borrowers to CRILC. Further, banks will be required 6853 54 to make higher/accelerated provisioning in respect of new loans/exposures to such borrowers as also new loans/ exposures to any other company promoted by such promoters/ directors or to a company on whose board any of the promoter / directors of this non-cooperative borrower is a director, PROCEDURE FOR REFERRING CASES OF -WILFUL DEFAULTERS TO CDR Before referring any case, the referring institution should check the lists of wilful defaulters, which are maintained and updated by RBI/CIBIL from time-to-time based on reporting by Fls/banks, to verify whether any Fi/bank has reported the company as wilful defaulter. If it is listed as a case of wilful defaulter/non-cooperative borrower with RBI/CIBIL/CRILC, the Referring Institution should ascertain from the concerned lenders the reasons for reporting the borrower as a wilful defaulter/ non-cooperative borrower and the remedial action proposed, either through correspondence or by convening a joint meeting. ‘The objective should be only to collect the relevant information and not to sit in judgment whether the action of the concerned lendex(s) of reporting as wilful defaulter/ non-cooperative borrower was correct or not. The remedy for addressing the issue of wilful default/ non-cooperative borrower in a particular case should generally be found based on discussions with other participating Fls/banks and the borrowers. As regards non-CDR members, it may be difficult to obtain particulars about reasons for reporting a case as wilful defaulter as also the procedure followed and the remedial measures suggested by such lenders, In such cases, information may be collected from the borrower and corroborated by facts gathered through actual discussion with non-CDR members. Since the exact nature of the remedy to address concerns of such members cannot be crystallized without the approval of their competent authorities, the Referring Institution may have to make a reasonable judgment for preparing the scheme with special bucket (if 6955 5.6 () © absolutely essential) for addressing the wilful default status for CDR members. However, it would be desirable that they fall in line with the CDR package without any special bucket. In case additional cash flows are required for settlement with such lenders, the promoters should arrange the same. ‘The Referring Institution should prepare the Flash Report in the CDR format for submission to the CDR Core Group, also indicating details of reporting as Wilful Defaulier/ non-cooperative borrower, gist of discussions at joint’ lender's meetings, justification for considering the case of wilful defaulter/ non- cooperative borrower under CDR, time schedule for referring the Flash Report to CDR EG and finalising the restructuring package ete. In case the reason for reporting as wilful defaulter is diversion of funds, use of debt for purposes other than intended, use of long-term funds for short-term purposes or vice-versa o from one group company to other etc,, then following course of action may be adopted: If the funds have been utilized by the group company/associates and subsidiary company or company under the same management, then such funds may be brought back in a time-bound manner to the TRA of the main company. In case such funds were used for some other purposes such as investment, stock market operations, meeting capital expenditure, meeting, cash losses, making payments to other lenders, etc., it may be difficult to bring back such funds. In such situations, promoters may have to come up with alternative proposals including bringing funds from their other sources. As mentioned above, if based on investigate audit, super-majority of lenders feel that it is a case of siphoning of funds, then in such a case remedy is only to get the funds back from promoters’ other sources. However, in such situations, continuing with the same management need to be looked into. In any case, under both situations (a or b above), the objective is to get the funds back into the company’s TRA ina time-bound manner. The funds could also be brought back by way of sale of assets or investments. If such assets are created in 70@) © 57 59 5.10 5.11 other group company, then lenders of the concerned company may have to agree for it. As promoters are the common thread for such past actions, the responsibility for finding a remedy for wilful default should lie with the promoters and they must give a suitable undertaking for the same. After considering the proposal for bringing back diverted funds into the TRA, decision regarding redistribution thereof may be left to CDR EG. In cases where change in management, strategic investment, venture capital funds with professional management etc. are envisaged, it may not be possible to complete the process at the stage of Core Group discussion or at the stage of Flash or Final Restructuring proposal. Therefore, some time-bound programme may be drawn for completion of such tasks and incorporated in LOA with suitable enabling clauses so that it does not amount to second restructuring, Such commitment from the company/existing promoters could be included in the Note for Core Group deliberations. Once the Cote Group accords in-principle clearance to admission of a particular case of wilful defaulter, the Flash Report in the stipulated format should be submitted to CDR EG for approving admission to CDR and usual procedure should be adopted thereafter. After implementation of the approved package, the concerned lenders should withdraw the name from the list of wilful defaulters It is also felt that super-majority vote cannot be used to force some lenders to withdraw the company’s name from the list of wilful defaulters. ‘There are some existing CDR cases approved before the RBI clarification on considering cases of wilful defaulter under CDR. In such cases; names of the corporate borrowers have not been withdrawn from the list of wilful defaulter as yet. The concerned lenders should withdraw such names forthwith. n» Annexure - IV A, STANDARD CONDITIONS TO BE STIPULATED IN ALL CDR CASES INCLUDING BORROWER CLASS - ‘A’ ‘The Promoters shall furnish unconditional and irrevocable personal guarantee in the form and manner acceptable to CDR EG. ‘The Promoters shall pledge their entire shareholding in favour of the Lenders in demat form with voting rights. In case of issuance of fresh Equity Shares or similar instruments carrying voting rights, they would also be pledged in favour of the lenders. The Borrower shall procure and furnish an Undertaking from the promoters to bring additional funds for meeting any cash flow shortage to service lenders’ debt/ interest, if required by CDR EG. ‘The Promoters/Borrower would arrange to furnish additional collateral security, if required by CDR EG. The Borrower/ CDR Lenders shall file Consent Terms, in respect of any pending, dispute or litigation before debt recovery tribunal/courts where recovery application/suit is pending. The company shall broad base its Board of Directors and strengthen Management set up by inducting outside professionals to the satisfaction of Lenders. ‘The company shall not effect any change in management set up without prior permission from CDR EG. ‘The Borrower shall not incur any capital expenditure save and except those permitted in terms of the CDR package without prior approval of CDR EG. ‘The Borrower shall not sell any of its fixed assets/investments save and except those permitted in terms of the CDR package, without prior approval of CDR EG and shall furnish requisite undertaking in this regard. However, the Borrower shail sell its non-core assets, wherever applicable and an ‘Asset Sale Committee’ would be set up with the approval of CDR EG for sale of such assets. R10. i. 12, 13. 14. 15, 16. ‘The Company shall not declare any dividend on its equity shares without prior consent of lenders/CDR EG. The Borrower shall not escrow its future cash flow (except discounting of bills in the normal course of business) or create any charge or lien or interest thereon of whatsoever nature except as provided in CDR package, without the approval of CDR-EG. ‘The Company shall not make any investments in other Companies or elsewhere without prior approval of CDR EG. In the event of the Borrower committing default on the repayment of installment of the Joan or payment of interest on the due dates, the lenders shall have an unqualified right to disclose the name of the company and its directors to the Reserve Bank of India (RBI)/Credit Information Bureau of India (CIBIL). The company shall give its consent to lenders or RBI/CIBIL to publish its name and the names of its Directors as defaulters in such manner and through such medium as lenders/RBI/CIBIL in their absolute discretion may think fit. In the case of any future induction of private equity/ECB/Venture capital fands/any other source for prepayment, the prepayment will be on pro-rata basis amongst different debt instruments. However, any changes thereof could be approved by CDR EG. Any OTS or settlement the company may enter with non-CDR members will be subject to prior approval of CDR EG. NPV of such settiements should be, as far as possible, less than the NPV calculated on the basis of CDR package agreed by lenders. ‘The company shall Keep the lenders informed of any legal proceedings, the outcome of which would have a material impact on the debt servicing capability of the company. In consultation with the lenders, it shall take such remedial actions, as may be required in the best interest of the company and the lenders B1. 18, 19. 20. 21. 22. Save as aforesaid all other terms and conditions of the earlier loan agreements entered into between the company and the institutions shall apply mutatis- mutandis, to the extent not contrary to the terms of CDR package. ‘The borrower cannot open/maintain any account or avail any type of banking services/facilities from any bank (s) other than Banks/Fls from whom the borrower is enjoying credit facilities. Any deviation in this regard needs to approved by CDR Empowered Group. CDR Lenders, with the approval of CDR EG, shall establish Trust & Retention Account (TRA) and enter into a Trust & Retention Account Agreement. The Borrower would ensure submission of quarterly /annual cash flows to all CDR lenders. CDR lenders shall appoint at the sole cost and expense of the Borrower a Concurrent Auditor during the currency of the package, to review the operations of the company on a periodic basis, moni ring the operations of TRA and any other work that may be assigned by the lenders. CDR Lenders, with the approval of CDR EG, shall have the right to revoke the CDR package in case the Borrower commits an_ event of default, as described in the existing loan agreement or in the MRA or any Facility Agreement. The CDR lender has to inform CDR EG within seven days of the event of default and proposed course of action on the same. CDR EG would give a decision on the same within 60 days, if not then individual lenders are permitted to take action at their discretion. The CDR Lenders, with the approval of CDR-EG, shall have the right to renegotiate the terms of restructuring including accelerating the repayment schedule in the event of better performance by the Borrower vis-a-vis projections. Under such circumstances the company shall clear dues as per accelerated repayment schedule without demur. 424. 26. 27. ‘The CDR Lenders, with the approval of CDR KG, shall have the right to recompense the reliefs/sacrifices/ waivers extended by respective CDR Lenders as per CDR guidelines. CDR Lenders, with the approval of CDR EG, shall have a right to reset the rate of the term loan/s after every 3 years (or shorter period as decided by CDR EG) and working capital interest rate every year. All participating CDR lenders shall be entitled to retain or appoint nominees on the Board of Directors of the company during the currency of their assistance. CDR Lenders shall have a right to convert entire/ part of defaulted interest and entire/ part of defaulted principal into equity as per SEBI pricing formula in the event of default, However, in the case of those CDR Lenders who already have default conversion rights, the same would be governed by existing loan covenants, The company promoters shall take necessary steps and obtain all requisite/necessary/statutory/other approvals for such allotment of equity shares or a part of it in terms of their existing loan agreements. All restructuring packages under CDR should include lenders’ right to convert defaulted amount into equity, at par. To facilitate this and existing conversion rights, enabling resolutions from the company as prescribed under sections 81 1(A) and 81 (8) of the Companies Act should be passed by the borrower corporate before signing the MRA. () Lenders shall have the right to convert up to 20% of the term loan outstanding beyond seven years into equity at any time after seven years from the date of Letter of Approval issued by CDR Cell. (i) Such conversion shall be as per the guidelines issued by RBI & Securities & Exchange Board of India (SEBI) from time-to-time/or as per the applicable Joan covenants. (ii) Entire amount of FITL/WCTL to be converted to equity at the option of the lenders. 1529, 30. 31. 32. (iv) _ In the event all lenders or any of the lenders exercise their right to sell the shares issued in terms of the conversion clause, the first right of refusal to buy back the shares shall lie with the promoters. In such case also the conversion would be as per SEBI guidelines or applicable loan covenants. Individual lenders shall have right to assign/hypothecate/transfer their outstanding to any Asset Reconstruction company/Bank/or any other entity, in terms of CDR guidelines. (i If assignment is inevitable after implementation of package, the JLM should be called to discuss the intended transfer and its impact on restructuring scheme and should be intimated to CDR cell and case may be declared as failed and assignment should be done with the knowledge of CDR EG. (@) If restructuring has been decided as per CAP then banks will not be permissible to sell such assets to ARC, without arranging for their share in additional finance to be provided by new or existing creditor. IEC observations shall be complied with by the company and MI shall monitor the same. TE lenders decide to consider / reject the observations of Special Investigative ‘Audit, then it will be discussed under JLM and MI shall furnish a satisfactorily closed certificate i.e. MI certificate as per Annexure VIL Promoters shall ensure the realisation of sticky debtors / Jong term receivables as mapped in the package. Banks shall implement the approved CDR package, as per the terms and conditions approved by the CDR EG. 16ADDITIONAL CONDITIONS FOR BORROWER CLASS -'B’ (IN ADDITION TO STANDARD CONDITIONS STIPULATED UNDER A) The Borrower shall procure and furnish an unconditional and irrevocable Corporate Guarantee of Group companies, if so stipulated by CDR EG. ‘The Promoters of the Borrower Company shall raise additional contribution by way of equity/and/or unsecured (subordinate) loans on terms and conditions stipulated by /acceptable to CDR EG. The Borrower shall arrange to bring back funds/investments diverted by the Borrower in the associate Companies, if applicable in the case within a time frame, and as stipulated by EG. ADDITIONAL CONDITIONS FOR BORROWER CLASS -'C' (IN ADDITION TO STANDARD CONDITIONS STIPULATED UNDER A & B) The Borrower shall appoint a Whole-time Director (Finance) as and when stipulated by CDR EG within the guidelines of corporate governance. ‘Company shall write down its equity, as stipulated by CDR EG. ‘The Borrower shall assign/mortgage its brand(s) to the CDR lenders, as stipulated by CDR EG. ADDITIONAL CONDITIONS FOR BORROWER CLASS ~ 'D' (IN ADDITION TO STANDARD CONDITIONS STIPULATED UNDER A, BEC) CDR Lenders, with the approval of CDR EG, shall have a right to appoint lenders' engineer/ monitoring agency / lenders’ Counsel. The Borrower/ promoters would arrange for induction of a strategic investor/co- promoter, if required by the approval CDR EG. CDR Lenders, with the approval of CDR EG, shall have a right to appoint an independent Chairman/ professional CEO. 1Annexure -V Information to be furnished by the lead on implementation of restructuring scheme as approved by the CDR Empowered Group 1. Name of the Company : 2. Date of sanction of scheme by CDR Empowered Group: — 3, Details of the proposal (to be limited to the institution/bank furnishing, the information) [Name of the institution /bank | Date of approval of Details of | Comments which referred the case/|the scheme _ by | Package participating lenders etc. Empowered Group | Approved 4, Progress in implementation: ate of reference Date of jate OF Date of ‘easons for ‘othe delegated bpproval by pffectiveness of the Fommunicat Helay in thority secking the delegated package inthe fon tothe _ffecting the approval tuthority books of institution [Assisted Unit package, if | te \/bank He ny. 5, Monitoring Committee [S.No Member FI/Bank Represented By 2 3. 4. 6. Payment Record of the Company Bank [Aggregate payments made agregate payments as envisaged (0/s as on| | vy the Company as on date _[n the restructuring package te | | TE ‘Observations/comments, if any, on payment record of the company 7. Status of approval/implementation of restructuring scheme by non-member banks /institutions/ unsecured lenders 8, Fulfillment of company's/promoters’ obligations as envisaged in the scheme, (4.¢. Condition-wise Status of compliance of conditions of restructuring package) 9, Difficulties faced, in the opinion of the lead, in implementation of the scheme BOutstanding Issues and solution thereof. 110. Suggestions/ Recommendations of Monitoring Committee for relaxation/ modifications in terms/conditions of package to CDR EG. 11. Appointment of Concurrent Auditor and Concurrent Auditors’ observations. 12. Status on quality of asset Name of thd Classification of asse Present classification tt) Bank | When in CDR of account |Remarks, if am I J 1, Summary of company’s operational and financial position (to be forwarded on quarterly basis. However, any relevant qualitative or quantitative information if available, to be reported on monthly basis. ‘Actuals For | Correspon|Estimates) CDR. Qtr/Half9 | ding CDR} for full | Projection m/full year | Projections! year _ for full yea Particulars Installed Capacity (unit-wise) Capacity Utilisation (unit-wise) Production (unit-wise) Gross Sales (Rs. in crore) Net Sales (Rs. in croze) PBIDY (Rs. in crore) Lease rentals (Rs. in crore) Interest (Rs. in crore) Depreciation (Rs. in crore) PBI (Rs. in crore) PAT (Rs. in crore) Net cash accruals (Rs. in crore) Reasons for improvement/deterioration in performance vis-a-vis CDR Projections. Corrective measures taken by the company to improve its performance (in case of deterioration). ‘The Company’ product positioning in the market at present, status of change in management, if any etc. 14, Specific observations /comments, if any. 9Annexure VI List of circulars/clarifications issued/received post CDR Master Circular dated January 9, 2013 [Date of [Added/replaced in Isr. |Circular/letter CDR IRevised Master 'No. reference (Circular [Particulars \Circular at para no. |Certificate from Monitoring 1 | 01/ 2013-14 |25 Oct 2013 Institution |Annexure WII 2 | 02/ 2013-14 |25 Oct 2013|Recompense Policy {Section 18 \Clarifications consequent to changes by RBI & Other 3 | 03,/ 2018-14 [26 Oct 2018 operational / procedural issues Section 3, thanges to Flash Report, DCA 04 / 2013-14 |20 Oct 2013) Personal Guarantees ICA, DCA s 80Annexure VIL Certificate from Monitoring Institution In order to address certain operational issues and to strengthen the compliances and the quality of final reports, Monitoring Institution (MI) should furnish a certificate along with a final report, confirming that: a) b) °° 4) °) ) 8) h) Viability has been examined and is in compliance with the existing guidelines. ‘The TEV report and the clarifications given by the company were discussed in JLM conducted on ~—~ (insert date) and based on the clarifications given by the company lenders agreed to go forward with the restructuring proposal as TEV report confirms technical feasibility /financial viability. The stock and receivables audit report and the clarification received from company were discussed in JLM held on —— (insert date) and lenders have taken them on record, Due diligence / Special Investigative Audit report was discussed in JLM held on _-~ (insert date) with the clarifications given by the company. Lenders decided to go ahead with the package. No diversion of funds outside the business has taken place other than those brought out in the final package. And there is no misuse of funds by the company/ promoters as confirmed by Special Investigative Audit. Lenders’ sacrifice has been verified and methodology is compliant with RBI guidelines. ‘All aspects of the final package have been discussed at JLM held on — date) and views of lenders have been considered while preparing the package. ‘The views of lenders not considered by MI in the final package with reasons therefore are mentioned below (mention divergences). ‘The following steps have been taken for Change of Management (please detail the steps taken) OR It was considered expedient to continue with the present management and the same has been explained in detail in the final package. 81apne rene “SOE MASTER JOINT LENDERS FORUM AGREEMENT ‘THiIS AGREEMENT 1s made at om this _, deyof_2044, by and between A Bank a body corporate constitupid by and-under ‘the Banking - Companies, (Aegustion and transfer of undertakings) Act 1970/80 and having tis Head Office at and Zonal{circle/Regional/ Branch Office amongst other places at (hereinafter caled "A Bank’, which expreésion shall, unless it be repugnant tothe sublectror contextthereaf, Include its successors and.asslgns) of the FIRST PART, ) AND B ‘bank, @ body corporate constituted by and under the Banking’ * eompantes, (Acquisition and transfer of undertaking) Act 1970/80 and haiving ts Head. Office at + and. Zonal/tecle/Regional/aranch Offa | ~ ‘aimongst othe places at (hereinattor vate Bank", which expéesston F shall, inlets ibe repugnant 1 the subject or contesttheteat, include tts successors f and assigns) ofthe SECOND PART. ‘AND’ a . i a fe 'e Bank; 2 body corporate constinuted-ty"and unde the Banking ~ | te “Comaties, (Requisition afd ‘ransfer‘f undertaking) Act 4870/80 and having RS = | Head. Office” at and Zonal/Circle/Regional/Branch Office amongst other places at (hereafter called "¢ Bank’, which expression shall, unless it be repugnant tothe subjector context thervof, include fs successors and asslgns) ofthe THIRD PART, AND. Do Bank, a body ‘corporate omstituted-By nd under the Banking Companies, (Acquisition and transfer of undertakings) Act-1970/80 and _ having Hts Head Office, at and Zonal/Circle/Regional/Branch Office amongst other places at (heveinafter called "D Bank", which expression shall,“unless It be repugnant to the subject Gr context thereet include its suecessors and assigns) of the FOURTH PART“ * The Banks A, 8, € &'D, have extended facilities to Mis dl { heretiiafter rearted to as the Borrower), -AND have formed @ Joint Lenders Fofum and hereinafirare collectively referred to as "ILF* arid Wdlvidually referred to as “Mertbers of HF” which ‘expression shall, untéss " be. Fepugnant to the: subject or context thereof, | etude each. of them, or any” one’ or more of them.and thele Fespactive ‘SURCESSONS : andassghs WHEREAS © (A) “Whereas various banks as détalfed in Schedule! lave financed fhe Borrower ._ tb the: extent of thelr expdsuire/Facilties as, Indoated the sald’ Schedule'l,” hereinafte} referréd to as the Lender Bank. (8) the Lender’ Banks fave to fdentfy iricpfent stess inthe account of the . “Borrower by classilying the accourit as ‘Special Nention Accounts” (SMIA} th ‘tems oF guidelines issuéd by Reserve Bank of Irdh (RB!) from time to time: {©} | Upon an account with any Lender Bank béing ideitfied as ap Special Mention = Acebuint (SMA), os per the’ RBI Guidelines, the Lender, Bank will adopt'alt noessary measures soastobe able to avoid it rim betoming NPA, * (py - ander Bahks'shall collect credit; Inforniation a all Lénder Banks on the =. Borrower of a comavon’ platform for reporting Information, ahalyzing & making 9 collective dacision with respect to the condition for dataction & ‘Action Plaré(CAP) forsuch accounts. 33 eo resolstion of the stressed assets & SMAs-in ord to formulate a Collective ° iPage \(EB). ALE Member Banks hereby agree that the central Repository of Information On tatge Cres ("CRILC”, set up by the Reser Bank oF Inala wil be te -Platform for coating such information, stor ad dseminate credit data of the sald Borrower to all ts Lender Banks, the credit information agreed to be furnished by the tender Banis wl intude al red exposures‘inder RBI Bulelites on Exposure Norms aid interala,hal cide dati onthe Lender Banks! Investinenis in honds/debentures Issied bya borrower, The- Menider Banks will report credit ifotmation, Includlig dassfeation of du account as " SMA to CRILC on ‘all thelr bofrowers having igsresite fund-based dnd nom: fund’ Based exposure ag per suldelines | Iisuel by the Reserve: Bank of india from time to time. * NOW THEREFORE, 771s nEcoRDED: THAY THE PARTS HERETO HAVE MUTUALLY “AGREED AS FOLLOWS : FORMELATION OF THEIOINT LENDER'S FORIN 5 Once the account of sited Borrower is repored to the CRIN as SMA with, rincipal or interest “Payment overtiite between 61 ~90 days, as per extant’: * RBI Guidelines, by one or-more of the Lender Banks, the Lender Banks shalt. ‘tihdatoiily form @ Joint iendery Forum’ (RP, Which all the Lender Bariks or the banks wha represent Lender Barks wil! become meiribers, The” SLE with ‘together formulate ‘a Corrective. Acton Plan (“CAP”) for eatly 7 Fesolution Of the stres in the accourt & shallow the deta tisyed by 42 = ‘the Reserve Bank of india from time totime, IN terms of RBI guidelines, the Lender Bariks are raquired to form a Joint “Lenders Forum ULF} and enter into {UF Agreement for Setting aut the terms ‘and conditions upon which the Joint Lendew’ Forum be set up and to -prescbe the manner’ of finetioning and ‘te role of the JUP for early detection of and resolution inthe. stressed account,43 aL 22 tis agreed ‘that the Lender Banks will be represented: In ALF by Senior: ‘Executives with appropriate authority/imandate tom the respective banks. ROLE OF THE JOINY LENDERS FORUM mcee “pe ‘Tha JLF will be empowered with capabifty/optionto livte representatives of the Central/State Government/Project authorites/Local authorities, if they -hayg'a role in the: implementation of the’ projeet financed by the Lender = Banks, : sethessizd te : The au wt explore vatious options, under CAF, to'ferolve the res ithe, =" aceciunt of the seid. Borrowier, which may be tn the fom of Testructurng : rectification ‘of recovery, which the-JLF may deew fit to arrive at‘en early and ible resolution to preserve the economic valu of the underlying assets as! ~ ells the Lender Banks’ foans as is descitbed i Schedule 1 The Lender Bainké have Agreed that with respect to the opticns tbe used by the JLF for * rasplution’of.the stréss-ir the account of the sid Sorrower, the decision ngjeed apon by & mininium of 75% of Lender Banks by value and 60% of fender ‘Banks'by number would be considered asthe basts for proceeding. vith the restnicturing or recdvery action of the account, and will be binding «ofthe Lender Banks under the terri of the Inter Credtor Agreement, iF any: othe Lender Banks: ‘shall further, authorize the JLF in deciding 4he best recovery, _ | process to be followed among, the varilis legal and other recovery options 3 available with a viewing optimizing the efforts and results: OBLIGATIONS OF THE JOINT LENDERS’ FORUM Upoh formation, the JLF will be responsible for the following actions: ‘The JLF should explore the possibility of the borrower setting: right the irtegutarities/ weaknesses in the account, viPege} i 32 aa 35 ‘The JLF shall conduct @ Meeting of ali Lender Banks at quarterly intervals to Sst08s the Pérfocmance of the SNA of the ald Borrower which are notlted bythe Lender Banks and based! on the Statenents received from a borrower under the Quarterly information System (QS) and fi ct such Meeting the | "Operating Umits/individual Bank's shape theteof for te next Quarter which "shall Be binding oi the Meinbers of the Bank Consortium, ‘ssuet by Reserve Bank of india Yrém time to time, nsdn titercredtor Agreement (ICA) and Debtor Creditor Agreement (DCA) wll be ‘appliceble; ‘mutatis rnutandls tothe JL reference. W the JLF decides to restructure aty loan of te sald Borrower, then the itr shall cortsider the following options while Festructuring the loan; ( * Passbity of transferring egity of the'sd Borrower by Sromotens to the Meinber Banks to compensate for tr sacrifices; “Ai Promoters infusing more equly into ther companies; “Transfer ofthe promoters’ holdings to.asacurty trustee or an esciow ~_strangement:titumarourid of ‘compainy, This wilt enable a change in “mandgeinent control, should the Member Banks favour it, “In order't distinguish the Alfferential security Interest avaliable to secured: lenders, partially secured lenders and unsecured eiders, amongst the Lender ‘Banks the JLE/CDR stall const various optlonstike: (0. Prior agteetnent in the ICA among the above classes of leer ‘"égarding repayments, say, 4s per an agreed watesfall fnechanism; (i) - Astructured agreement stipulating priority of secured creditors; . |Page ge ” Comporate Debt Restrictring, the requirement unider the COR guidelines; as ; OC)(iil) " Appropriation of repayment Proceeds meng secured, partially secured and i ons eal certain pe-agrectd Proportion. The i ya de na rautually agréed dean, apart froth the options in above thistated lst, Banks agree to-appede the concems of fll lenders and artve ata mutually agreed opton vith a view to presene thé ®coriomle vale of assets. Once an opilonisagrealupon the hank having the “._latgast’ exposure may take the ead in ensuring distribution abcoring to 44a 4a “43, agreed, [terms ones the estrtini package Is finglemented. - CORRECTIVE ACTION, pian (reap tt ie agreed that JLF chal explor& varius optionsto resolve the stress ln thé ‘account. Jif shall make effort to’artive at a early feasible’ solution to " préserva.the economic value of the iundetlying assets, as well as the fenders loan: The options under Comective- Action lin {CAP)-by the JF would generally include : - 2} Rectification 'b) Restructuring ¢) Recovery" ** ‘is agroed that the edison agreed upon by aninimum of 75% of dreditors by Value oF 6096 of erétors by number In JL Wold be considered as tha : basis for proceeding'with the restructuring of the account and-would be binding oni all lenders under the térms of Xp Inter Creditor: Agreement / ‘Debtor Creditor, Agreement. However, f theJLF decides to. proceed with _Segovery, the minimum etteria for binding decison, if-any, under-any relevant laivs/Acts would be applicable, At Is agreed that If the JF decldes to put account of the borrower as CAP, I ‘would do so as per guidelines issued by RBI frem time to time,bas SENDER BANKS OBUGATIONS; The tender Banks hereby agree to’ abide: ‘by the directions, instructions and, Clarifications as may be given from time ‘to time by the JLF/ the Steering Committee/the , Sub-Committee (if. any foimed by JLF) in iti of all : eters ars Sut of on etation ‘othe sallaerrower S ‘in cases wherd the Lender Banks have ‘consitited @ consortitim and. wher Et fhe'Sald Borrawer owes dues’ to a ecinsortni; each.of the Lender. banks gree to closely monitor the accounts of its borrowers that are reported to © the ORILC a8 SMALE (Le. risichoal or interest payment overdue between 34 r, ‘60 days) or SMA-O,{ie. principal or interest Rayment not overdue for more ‘thah 20 days but account. showing signs. of incipient stress) of an ongsing “, Process, and shalreport to the JF any eat) Warning signs of Weaknesses “noticed.in thé performance of the SMA. The lender Banks further: agree to. closely Monitor every such SMA account ani to adopt such actions as the “SLE may recommend to be ‘ken up ‘with a viel to rectifying the deficishcles oo atthéeareit, ‘The JLF Member Banks agree to act tn the bei laterests ofall levides Bénks i ‘and Borrowers having due regard to the interés of each of the Lender Barks ‘and Keap thé leader 6f the Bank ‘Consortium afi tthe, Merhbeis duly informed by sharing of snforniation on credit, derivatives, unhedgad: foreign currency exposure: and ‘any other information relating tothe Bofrower coming to thelr knowledge. ‘The Merhbers of the Bank Consortium do hereby further agree that they would strictly adhere to,, the instuetions. regarding sharielg of ~_Information on credit, derivatives, unhedged freign currency exposure and any ‘other information. relating to the Boérwer among themselves a& mandated: by RB from time to time and woud put in place an ete machahism for such information sharing, [Page54 _ 53" 3a | 5B SF ‘No Lender Bank shall, without the consent of he MF/ifs Sub -commnites, agree to any modification of the ‘terms of this Ageement nor waive the penal __Intérest: on-defaultsor charge rate of interest applicable to barrowers. . accounts or vary the margins stipulated earier wih fespect to.an SMA. Subject to the provislons of this, Agreement, proceeds of sale of other ‘progeeds.cut of oF In connection .with any of he seouritiés created by the borrower for ain SMA apodunt wil be shafed in tcardance with the Securty, document entered into by the sald Borrower bit subject to the consent-of thes. foradoptiigany auc acon for sale of surest. | _ SEF Niernber Banks agree to eisure that thete il be riguar follow wp and sipievtslon over credit extended to said Borrower’ and each of the Mersber Bans ‘$8a2 Reap the-Consortium Leader aches /informad of all matters’ affecting:thig:Aerecmsent 4) aerate mvt consultation with ope Gacvereatcs Consortia’. Inspection of the Books of Account, ‘erificationof securities and spot chicks Ghali be done by JUF Member-Bank by. rotation es may be decided by Sub- "corte and the Noles of fispection and Vefication shal bi foriardéd ‘to altthe Members of the Bank Consortiyi. The itr Member Banks shall ‘pleceniea! collection of ata from a borrower by ILE “ansite that there * Member Bank, Sepeataly ‘ut that all collecton of data ts made by the: Conortiam Leader or'a Merabet Bank appointed for such purpose by the JLF it may direct. ora ‘Each ofthe Lendér Banks shal atthe request FJ Sub-Commite Jon ‘in the exercise of any power hereby made exerciuble by the sald Banks or any cf them, shal jon or concur In al such det, rcuidngs things oF steps 8s may be Hecessary or convenient to enable anyof the Lender Banksto recover any moneys dug to tt upon-the seid Securts or otherwise to obtain the, 64i} 5a, = 5.20 benefit of the said Securitles and in defaut, the said Lender Bank may be made a defendant/respondent in ‘any action, other Banks miay decide to taka, “The JLE Member Banks gree to adhere toand-act in accordance with the applicable time tines set out for the purpose, lfdespite mhoniterg and thé assistance. proiided, any SMA still uris ina a Hon Perforiing Asset with any of the: Lends? Banks; all the! Sther Lender SAL. 512 _ Banks lrespective‘of the position of tha satdBorrowars accounts with them Sha Immediately stop further withdrawls tom the accoiit(s)-of the said Borrower with them. and shall also not. illow. ‘any furthet: sanction of faclity/advance to a borrower éxcent' witha rsotution ofthe JLF, B No tender Bank wil be permitted to leave thaBank Consortium before expiry ‘of atleast two years from the date, of ts orig the LAF, Member Banks shal ‘not bé ordinarily perinitied to ext from strésed accounts or from SMAs. Exit, tiay be conser with ei approval of the ib-commitie (formed by 12) on such terms a5 fs approved by the majority embers ofthe sub-cominttee, Where, however, a tender Sank faces a temporary liquidity éonstraé itwitt be spiento one or hore of the.other Lender Banks to agree, on requiest by. _/the did Lender Bank, to take up for a ternpusty pera ‘ot exéeeding sic months or such other peridd as ‘maythe agree to by JUF/ Consortium Leader at Is -sole discretion’ (hereinafter referred 1» as-"iha seated ‘Temporary. Period") that Lender Bank's. ‘Share in any Additional Credit Facility that may be ‘ sanctioned to the Borrower against the ‘Guarattee of that Lender Bank, if so called upon and on the understanding tat the Lender Bank wil ake overs due share by the end of the Sitad Temporary ered is epetcly agreed ‘at the status ofthe Consortium Leader In such an event does not get affected if for a temporary period the Consort Leader ceases, to have the Fequired largest exposure in the Fund Based Facilities granted to a borrower during that pertod. [Page5.43." The. Consortium Leader wil be responsible for sibrtsien of appiaton to ‘the RBI on behalf of the Bank Consortium for authorizatien, if any required, and for answering to ‘the requisitions as may from time to time be made by the RBtin regard to the accounts ofa borrawer. 5.44 Lender Banks shall follow the Prudential Norms of the RBI with respect 10" 6i “62 $63. _Assat Classiiation and Provisioning, Where a yesueturing proposals under consideration eithe? by the JLF/COR the ual ast clgssfiatiot norm would ‘nding to apply tp afl Lender Banks. CONSORTIUM AND simLe BANKING ARRANGEMENTS ‘in aa where thie said Borrower has availed of consortium lender's facies, the! Consortium Leader will seqve as Corivener of JLF, For accounts under ‘Maltiple Banidng_ Arrangements, the. Lender Baik which has the largest exposui to the'sald Bosrowef andthe largest shre in the lending to the said ‘Borroviet shall convene JEP. ‘ie Baie Consortium half st Im accordant with te’ rections and » ttretlons even by JL Sub-Committee, any, ino far a the monitor ofthe Borrower's tein ans/ Gish edit Account) or other Accodnts) with digpue oF diferendeof view on the quantum of the permissible, “bank ‘finances, terms and condition’ ta be knposed oreny other inatter pertaining, 48 thé Bortower's Term Loan] Cash Credit Accouri{s) oF otfier Accounts) the, ” matter shall be resolved by referring the same toil, The Lendet Bonk shall abide by alf the operation! giidelines regarding data coverage, integrity, dissemination, Féporting foimat, frequency, etc. whlets srall be tssued by the RBI froin time to time, sara7, ROLE OF STEERING COMMITTEE /SUB-COMMMITTEE : “tfthere {s large number of tenders under the JLF, the JL may decide to forma Sub Commitee /- Steering Committee eonsisting of ‘Members: with higher exposires pursuant to the resolution by JLF Member Banks to that effect, The powers of the Steering Committee will be’such as ts resolved tobe appropriately JF Member: Barts, | : “Be uneisnes issuep By RESERVE BANK OF INDIA Guidelines issued by-the’ Reserve Bank ‘of ‘nda frot time to time on. 1h related {Ssues shall be applicable onall:the Lender Banks of IF. Ww WITNESS WHEREOF, the Parties hereto have set thi haid unto these Prsens the day, month and year} hereinabove written, ‘SIGNED ' AND. peuvent for and on ‘ ‘behalf of A Bank as tha Lead Bank by the Rand of Shti a “its Authorized offical th this behalf. signe AND : DELIVERED . for’ and. on behalf of thes Member Banks "as * mentioned below by the hand oF ts duly Hl Fee . Authorized Official in this behalf. BBANK : Shri cBANK "S Shri “DBANK Shri OATEDTHISTHE | DAYOF 20.