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RBI broadly accepted resolution framework
for COVID-hit assets by Kamath panel. Experts estimated that loans worth Rs
4-4.5 trillion would need recast going by the panel rules.
An
expert panel headed by veteran banker KV Kamath, appointed by the Reserve Bank
of India (RBI) has submitted its report to the central bank on the resolution
framework for Covid-hit assets. The committee has outlined parameters to deal
with 26 sectors buffeted by Covid-19, which could be factored in by lending
institutions while finalising a resolution plan for a borrower. The findings of
the committee have been accepted by the RBI, which on Monday issued a circular
detailing the financial parameters to be followed by lending institutions.
The
panel tabled its report on September 4 wherein it has suggested financial
parameters that include aspects related to leverage, liquidity and debt
serviceability, the RBI said.
According
to the much-awaited report, the 26 sectors selected for the resolution
framework are: Power, construction, iron and steel manufacturing, roads, real
estate, trading wholesale, textiles, chemicals, consumer durables/FMCG,
non-ferrous metals, pharma, logistcis, gems and jewellery, cement, auto components,
hotels, mining, plastic products manufacturing, automobile manufacturing, auto
dealership, aviation, sugar, port and port services, shipping, building
materials, and corporate retail outlets.
It
also found areas such as agriculture, food, pharma, and IT, among a few others,
that remained mostly unaffected. For sectors where ratios have not been
specified, lenders can make their own assessment, the panel said.
The
panel did not specify the amount that
would need restructuring, but gave its recommendations basing itself on
parameters after discussion with stakeholders and rating agencies, and going
through financial reports of companies as well as some of those of the RBI.
However,
experts estimated that roughly Rs 4-4.5 trillion of loans would need to be
recast even after taking into consideration the economic recovery in the coming
months.
The
panel has put five key parameters for each sectors for lenders to decide the
resolution. These include total outstanding liability divided by adjusted
networth, total debt divided by Ebidta, debt service coverage ratio (DSCR),
average DSCR and current ratio. It had identified a few mandatory financial
ratios, but left it to banks to work out their own extra criteria. All banks
have started working on identifying stressed companies, and now can fine-tune
and filter the exercise further with the mandatory ratios.
The
panel has proposed an elaborate calculation criteria based on which the RBI
will prepare the final guidelines. Listing the criteria, the panel said the
sector specific parameters may be considered as guidance for preparation of
resolution plan for a borrower in the specified sector.
However,
industry experts say not all companies, even if they are part of the same
sector, can be evaluated based on a common parameter.
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