Prudent lending practices can lower corporate debt restructuring cases: Reserve Bank of India

MUMBAI: A majority of cases which are referred for corporate debt restructuring, or CDR, are due to factors that can be controlled by banks and can be mitigated by prudent lending practices, said a top Reserve Bank of India official.

Some high value borrowings from multiple lenders which are not repaid on time end up at the CDR cell where the terms of repayment for borrowers are eased. Though banks' dues are paid over a period of time, thanks to a revised repayment schedule, regular cash flows are interrupted which, in turn, impacts bank profitability.

"The reasons for cases coming to the CDR are many. But most of them are due to controllable factors." Anand Sinha, deputy RBI governor, said at the ET Financial management Summit, in Mumbai on Friday. Elaborating on the controllable factors, Sinha said that banks lend to highly-leveraged corporates. Some corporates have open positions in the forex market despite the central bank cautioning them."Even if asset quality is under pressure, the controllable factors can soften the blow. This is one factor that banks need to keep in mind," Sinha said in his keynote address at the summit.