Banks are demanding the setting up of a time bound Corporate Debt Restructuring (CDR) mechanism. They want the companies in this mechanism to exit after a fixed time period.
Such a demand has come after it was found that some companies were continuing to use the benefits of the mechanism despite their financial performance improving. This is done to exploit the facility of lower interest rates given under the mechanism.
There have been several cases where the companies have not exited the CDR mechanism for seven to eight years. So a proposal have been put up by banks which calls for the duration of the restructuring to be limited to 5 years.
In cases, where the companies have good performance for three continuous years, but still don't leave the CDR cell, the banks would start charging them commercial interest rates. The framing of a standard procedure for the exit of companies will also be worked out by the banks.
These measures will ensure that only worthy companies avail the benefits of the cell.
Banks expect the RBI to change the provisioning requirement of restructured accounts from 5% to 2%.This will ensure that banks treat such companies on urgent basis.