Six years after the Reseve Bank of India’s initiative to set up a forum for banks- Corporate Debt Restructuring (CDR), the forum has survived a shut down scare. The forum was set up by banks to resolve bad loans. At a meeting of CEOs of large commercial banks held early this week, bank CEOs decided to shoot down the proposal to wind up the Corporate Debt Restructuring (CDR) forum. Recently, the CDR cell had sought banks’ permission for its closure on account of slowdown in the cases addressed by the forum.
Sources have said that during the meeting bankers cited that the inception of CDR mechanism, it has helped the banking sector resolve a large number of cases. Further, some bankers also said they feared the ratio of bad loan may rise in near future, given the slowdown in the economy.
The CDR mechanism, an initiative by the Reserve Bank of India (RBI), came into effect in 2002 when the economy was facing a slowdown and the level of bad loans in the banking sector was quite high — in the range of 8-15%. RBI suggested the banks to form a forum where all banks would jointly resolve bad loans on a conceptual basis. This was to be mutually beneficial to all banks as it would prepare them for challenges faced by other banks as well. Through this mechanism, 165 cases amounting to Rs 83,000 crore were resolved by banks. Of this, 41 companies exited while only 31 cases failed.