How to achieve successful turnaround post debt- restructuring?

It is commonly observed that, among the SMEs in India, restructuring of bank debt is not resulting in turnaround rather perceived by many as a futile exercise. However methodical approach post restructuring of debts can make the turnaround successful.

Recently I got a call from one businessman went for bank loan restructuring three years back.  Then his banker initiated recovery proceedings upon his business started showing signs of sickness and the accounts were on the verge to slipping into NPA. He was very perturbed, angry at bankers and cursing his fate; obvious symptoms among SMEs under stress in India. This is mainly because business is an inseparable part of their life as it is not uncommon to find that entrepreneurs pledge all their hard-earned wealth- both business and personal- for such loans of their business. Then I suggested him to seek to restructure of debts as the provision was already in the RBI guidelines. Upon making a request to the bank, bank readily considered the proposal and permitted debt restructuring given his long-standing relationship and potential opportunity exists in his business.

When he called recently he told me that bank is again initiating recovery proceedings as his business is not doing well. He needed assistance to seek remedies. I was taken aback for a moment as I did not expect that he still needs another round of restructuring. When I closely examined the case and reasons for second restructuring, I found that although debt was restructured, business did not see a turnaround. Hence in the nutshell, debt restructuring did not result in anticipated outcome even after three years.

Can we question the relevance of debt restructuring as a relief to entrepreneurs because improvement does not happen as anticipated?

He is not the only one who is not seeing the fruit of restructuring of debt but entire banking Industry in India is facing this challenge. I guess this rampant presence of stress among the restructured loans might have prompted Reserve Bank of India (RBI) to change the classification of restructured account as NPA (It was not so until March 2015).

Debt restructuring is beginning of the successful turnaround of stressed business:

It is absolutely essential that the stressed firm gets lenders support for its turnaround effort. If lenders agree to restructure the debt, then the potential for the basic viability of the business is greatly improved. Debt restructuring is single most important action to provide sufficient cash to run the business properly for the stressed entity. Without this, the future of firm will be uncertain as banks can initiate recovery proceedings at their option once slipped to NPA. If bank moves to recovery proceedings, it will destroy the value of the business and the assets will suffer distressed sale. It will have a direct impact on the personal finance of entrepreneur as normally the personal assets such as house may also be pledged to the bank for raising the debt for business. Hence it is essential that bank debt is restructured for distress management.

What stands next for successful turnaround?

As explained above debt restructuring is just a pre-requisite. However successful turnaround requires an entrepreneur to commit himself to work on various dimensions and processes within the company. The fundamental drive any turnaround exercise is undertaking detailed viability analyses. It comprises analysing mainly business & financial strength and market competitiveness. Analysing the financial variables is critical to the survival of the firm in the current situation. Competitiveness is important in the intermediate stage which deals with what is achievable and can be achieved. One has to undertake segmentation analysis of assets, the profitability of business lines, breaking down the expenditure, prioritising the clients, etc. This segmentation is helpful to identify the avenues to minimise the cash outgo, maximise the profit and monetize the assets.

Behavioural change- an ingredient for the successful turnaround:

One cannot discount the role of people in shaping the health of an organisation. It is commonly observed that entrepreneur ignore the role of behavioural aspects in creating the stress.  The present situation may be the result of wrong practices, roles and contributions of the people in various capacities.  A stressed firm may critically examine the role played by the people (employees or consultants) and identify those who may have contributed to present mess and do everything to change the behaviour of people or change the composition of the team in the firm. In this process, the entrepreneur should put himself to scrutiny and see how he can change/reorient to make the turnaround a successful one.

People resource is an important resource that can play a vital role in long-term sustainability.

Exit non-core business or monetize the assets:

Many a time entrepreneur feel too possessive of their business even if is under stress and it is clear that stressed business is likely to eat into all precious resources, savings and harm the reputation. Many entrepreneurs accept stress is “fait accompli” and they have to endure with it.  I suggest that it is not necessary that you should stick to the business if you realise that the business is not in comfort zone of yourself or lost relevance in the larger economy. In such circumstances, a wiser approach is to strategise sale with the help of a coach or consultant. The Prudent financial strategy is to feel detached from the business and examine whether the business has any reason to stay in your fold.

Sometimes it may be prudent to divest a part of assets to lessen the debt burden provided the subject assets do not have an immediate use or the process can be outsourced. This will create more headroom to manage the liquidity, a preeminent task for business under stress.


Restructuring of Bank loans is a stepping stone for a turnaround, not a cure in itself for stressed business. Entrepreneurs should not settle down at that point rather work on factors- internal and external – that contribute to the turnaround of the enterprise. The firm should make introspection as to the reasons for its sickness and build safeguards to prevent the recurrence of such factors. Debt restructuring is largely a financial solution provided by the lenders. The business related risks are required to be addressed by the owners themselves.  The successful turnaround will be realised over a period of time and sure to bring in stable and happy future if executed properly.

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