Corporate Sectror Debt Restructuring

Many of the economies around the world are in an unstable situation. It is feared that   continued recession in Europe and other parts of the world would be felt around the world. Global economic meltdown has affected almost all the countries of the world. India can’t completely insulate itself from the crisis because the integration of its economy with the rest of the world owing to liberalisation and globalisation. Even strongest of American, European and Japanese companies are facing severe crisis of liquidity and credit. Recession in the United States and European Union (EU) countries is a very bad news for country because of   many Indian companies has most outsourcing deals from the US and the EU Reports suggest that the growth rate has plummeted.  Moreover there has been a decline exports to US and other developed countries. There has been decline in the employment due to the recession in the West, mainly due to drop in the outsourcing. The textile, garment and handicraft industry are badly affected. According to the Federation of Indian Export Organisations (FIEO) survey around 4 million jobs have vanished during the past few years. There has also been a decline in the tourist inflow lately. The real estate has also a problem of tight liquidity situations, where the developers are finding it hard to raise finances. Further, the manufacturing sector has equally been hit hard by the economic slowdown. According to CII, one third of the manufacturing sub sectors out of the 96 monitored by it have reported a negative growth in production during April to December 2010 The industrial sector is worst affected and many corporates are relining under the impact of slide in growth rate. In order to keep the economic growth during the time of worst recession, Federal authorities in India have announced the stimulus packages to prop up the economic growth. One of the stimulus packages is restructuring of loan portfolios of industial units. According to Crisil the total loans to be restructured in India during the current   fiscal year will be around 3.25 trillion rupees ($58.41 billion) compared to their earlier estimate of 2 trillion rupees. The revision is mainly because of the financial stress faced by and infrastructure sector state power companies. Loans of 1.6 trillion rupees had been restructured in 2011-12. Corporate loan restructurings surged 156 percent to a record high last financial year. But in this process of restricting of loans only large corporate houses have got the maximum benefit. Reports show that banks are giving preferential treatment to the corporate sector in debt restructuring, and tend to ignore the retail, agriculture and small and medium enterprise (SME) sectors, which are also the victims of economic downturn. According to  K C Chakrabarty, Deputy Governor RBI ( Reserve Bank of India), “Data suggests that banks are biased while restructuring. Those who can lobby and those who can hire consultants are getting better deals,”  According to him, “Public sector banks have more retail, agriculture and SME book but it’s not reflected in the restructured book, while private sector banks have more corporate book, but the restructuring quantum is very less.” That is, the SMEs have not been benefitted out of the restructuring of loans. But crony capitalists have reaped enormous gains.