Data on Debt Restructuring in India

To provide context specific to the Indian business landscape, here are some relevant data on restructured loans:

• As of September 2020, the total debt under restructuring in India stood at around INR 8.38 lakh crore (approximately USD 113 billion), including corporate debt, retail loans, and agriculture loans.
• In FY 2020-21, approximately 25% of the outstanding debt in the corporate sector in India was under stress, leading to increased demand for debt restructuring options.

Key Considerations for Debt Restructuring

• Financial Analysis: Businesses must conduct a thorough financial analysis to assess their repayment capacity, future cash flow projections, and the impact of restructuring on their overall financial health.
• Open Communication with Lenders: Establishing transparent communication with lenders is crucial throughout the restructuring process. Clearly articulating the business's financial challenges and proposing feasible restructuring options can help foster a cooperative approach.
• Professional Advice: Seeking guidance from financial advisors or restructuring experts can provide valuable insights and help businesses make informed decisions about debt restructuring.
• Long-Term Sustainability: Businesses should assess the long-term sustainability of the restructured loan. It is essential to evaluate whether the proposed restructuring terms align with the business's growth plans and future profitability.

The process of loan restructuring

The specific process of loan restructuring can vary depending on the lender, the type of loan, and the borrower's financial situation. However, here are some general steps involved in the loan restructuring process:

• Assessment of the borrower's financial situation: The borrower must provide detailed information about their current financial status, including income, expenses, assets, and liabilities. This helps the lender evaluate the borrower's ability to repay the loan and determine the extent of restructuring required.
• Proposal for loan restructuring: Based on the borrower's financial assessment, they may propose a modified repayment plan to the lender. This can include changes to the interest rate, loan term, monthly installment amount, or other loan terms.
• Negotiation with the lender: The borrower and lender engage in negotiations to reach an agreement on the modified loan terms. This may involve discussions on the revised repayment schedule, interest rate adjustments, extension of the loan term, or even partial forgiveness of the debt.
• Documentation and agreement: Once the borrower and lender agree on the modified terms, the agreement is formalized through documentation. This may involve signing a new loan agreement or an amendment to the existing loan agreement.
• Implementation of the loan restructuring: The borrower starts making payments based on the revised repayment plan. It is crucial for the borrower to adhere to the new terms to successfully complete the loan restructuring process.

During the credit restructuring process, it is common for lenders to conduct a thorough assessment of the borrower's financial viability and the risks associated with restructuring the loan. They may also consider the borrower's repayment history, creditworthiness, and the potential for future income growth.

Resurgent India Limited

Resurgent India is a prominent Category I Merchant Bank in India that offers tailored debt restructuring solutions to clients. The company's experienced professionals and widespread presence enable them to provide effective debt restructuring advice and services. Resurgent India has a strong track record of successfully executing numerous debt restructuring projects and delivering favourable outcomes for their clients.

Frequently Asked Questions

1. What is a restructured loan? 

A restructured loan refers to the modification of the terms of an existing debt agreement between a borrower and a lender. It aims to make the debt more manageable for the borrower, considering their financial difficulties. This restructuring may involve extending the loan term, reducing interest rates, or altering repayment schedules to match the borrower's cash flow capabilities.

2. What are the benefits of debt restructuring?

Debt restructuring offers several advantages, including:

• Improved cash flow by lowering monthly debt payments.
• Ensuring debt serviceability and aligning repayment schedules with the business's revenue generation.
• Avoiding bankruptcy and its potential consequences, such as legal proceedings and asset liquidation.
• Preserving positive relationships with lenders, leading to future financial support and a stronger credit profile.

3. What are the potential drawbacks of restructured loans?

While debt restructuring provides short-term relief, it can have some disadvantages, such as:

• Increased overall debt due to extended loan terms or reduced interest rates, leading to higher interest payments over an extended period.
• Potential impact on credit score as credit agencies may view loan refinancing as a sign of financial distress, potentially affecting the company's ability to access credit in the future.
• Limited options for small businesses, as they may face challenges in negotiating favourable restructuring terms due to their limited bargaining power.
• Legal and administrative complexities involved in the loan modification process, which can be time-consuming and require expertise.

4. How does debt restructuring impact creditworthiness?

Restructured loans can initially have an impact on a business's credit score, as credit agencies may perceive loan refinancing as a sign of financial distress. However, timely repayment of restructured loans can help rebuild creditworthiness over time.

5. What are the key considerations for debt restructuring?

Key considerations for debt restructuring include:

• Conducting a thorough financial analysis to assess repayment capacity, future cash flow projections, and the impact of restructuring on overall financial health.
• Establishing open communication with lenders to foster a cooperative approach.
• Seeking professional advice from financial advisors or restructuring experts to make informed decisions.
• Assessing the long-term sustainability of the restructured loan in alignment with the business's growth plans and future profitability.

6. What is the general process of loan restructuring?

The loan restructuring process may vary depending on the lender, loan type, and the borrower's financial situation. However, some general steps involved in loan restructuring are:

• Assessment of the borrower's financial situation.
• Proposal for loan restructuring based on the borrower's financial assessment.
• Negotiate with the lender to reach an agreement on the modified loan terms.
• Documentation and agreement formalization.
• Implementation of the loan restructuring by adhering to the new terms.

7. How does a lender evaluate the borrower's financial viability during loan restructuring?

During the loan restructuring process, lenders typically conduct a thorough assessment of the borrower's financial viability and the risks associated with restructuring the loan. They may consider factors such as the borrower's repayment history, creditworthiness, potential for future income growth, and overall financial health.

8. What does Resurgent India Limited offer in terms of debt restructuring?

Resurgent India Limited is a Category I Merchant Bank in India that provides tailored debt restructuring solutions to clients. The company offers advice and services related to debt restructuring through its experienced professionals and widespread presence. They have a strong track record of successfully executing numerous debt restructuring projects and delivering favourable outcomes for their clients.