Published Online:October 2024
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:IJARAP191024
Author Name:Kambakula Augustin Paul, Mary Jessica, Rajesh Ranjan Thakur and Tanya Shah
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:418-430
In 2001, Indian banks formed a consortium and started the Corporate Debt Restructuring mechanism under the detailed guidelines given by the Reserve Bank of India. The number of cases under this mechanism have gradually increased, as have the nonperforming assets. This study seeks to analyze the impact of corporate debt restructuring on the operating performance of selected Indian companies. The selected sample of 74 companies has further been grouped industry wise. Overall, three types of industries, i.e., infrastructure industry (22 companies), textile industry (10 companies) and iron and steel industry (7 companies) have been considered for analysis. The study was extended to check for any significant differences in the performance of the selected industries using the Wilcoxon signed rank test. The performance measures of operating margin and interest coverage ratio (Alderson and Betker, 1999) have been used. Secondary data was collected from the websites of the CDR cell, MCA CMIE and official websites of the various companies considered for the study. Financial statements from three years before the restructuring and the three to five years after the restructuring process lying between 2010 and 2018 have been analyzed. The study found that CDR has been largely insufficient in improving the real business of sample firms.
A company secures funds for acquisition of assets and for day-to-day operations. A bulk of these funds come from the owner’s equity, banks and term lending financial institutions. In the normal course of formalities, these banks and institutions must undertake due diligence related to profitability, cash flow ability, debt servicing capabilities, commercial feasibility, etc. of the firms to whom they have advanced funds.