Kamath Committee outlines loan restructuring parameters for 26 sectors
Sep 8, 2020, 09:17 IST
The Reserve Bank of India (RBI) on Monday said that it has broadly accepted the recommendations of the K.V. Kamath-led Expert Committee on Resolution Framework for Covid-19-related stress.
The expert committee has recommended financial parameters including aspects related to leverage, liquidity and debt serviceability. It has suggested financial ratios for 26 sectors, which can be factored by lenders while finalising a resolution plan for a certain borrower.
The sectors identified by the panel include auto components, auto manufacturing, aviation, cement, construction, pharma manufacturing, power, real estate, consumer durables, hotels, restaurants and tourism among others.
The committee selected five parameters based on their relevance while considering the resolution plan. These include ratios such as "Total Outside Liability/Adjusted Tangible Net Worth (TOL/Adjusted TNW), Total Debt/EBIDTA, Current Ratio, Debt Service Coverage Ratio (DSCR) and Average Debt Service Coverage Ratio (ADSCR)".
The lenders can also consider other financial parameters in addition to five mandatory parameters and may, at their discretion, adopt a graded approach depending on the severity of the impact on the borrowers, as per the report.
In respect of sectors where ratios have not been specified, lenders can make their own assessment towards the resolution plan.
The panel has recommended that the resolution framework should be invoked by December 31, 2020.
As per the recommendations, the resolution process should be treated as invoked once lenders representing 75 per cent by value and 60 per cent of lenders agree to do so.
The residual tenor of the loan may be extended by maximum two years, with or without payment moratorium. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan.
The asset classification may be maintained as standard or upgraded to standard subject to the resolution panel being implemented as per the framework, said the report of the panel.
SEE ALSO:
KV Kamath, the veteran banker behind ICICI’s rise in India, will now head the panel for one-time restructuring of loans
One-time loan restructuring dilemma - RBI won’t commit, and India Inc won’t stop asking for it
If you have a bank loan that you are unable to pay, restructuring is on its way
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The expert committee has recommended financial parameters including aspects related to leverage, liquidity and debt serviceability. It has suggested financial ratios for 26 sectors, which can be factored by lenders while finalising a resolution plan for a certain borrower.
The sectors identified by the panel include auto components, auto manufacturing, aviation, cement, construction, pharma manufacturing, power, real estate, consumer durables, hotels, restaurants and tourism among others.
The committee selected five parameters based on their relevance while considering the resolution plan. These include ratios such as "Total Outside Liability/Adjusted Tangible Net Worth (TOL/Adjusted TNW), Total Debt/EBIDTA, Current Ratio, Debt Service Coverage Ratio (DSCR) and Average Debt Service Coverage Ratio (ADSCR)".
The lenders can also consider other financial parameters in addition to five mandatory parameters and may, at their discretion, adopt a graded approach depending on the severity of the impact on the borrowers, as per the report.
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In respect of sectors where ratios have not been specified, lenders can make their own assessment towards the resolution plan.
The panel has recommended that the resolution framework should be invoked by December 31, 2020.
As per the recommendations, the resolution process should be treated as invoked once lenders representing 75 per cent by value and 60 per cent of lenders agree to do so.
The residual tenor of the loan may be extended by maximum two years, with or without payment moratorium. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan.
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The asset classification may be maintained as standard or upgraded to standard subject to the resolution panel being implemented as per the framework, said the report of the panel.
SEE ALSO:
KV Kamath, the veteran banker behind ICICI’s rise in India, will now head the panel for one-time restructuring of loans
One-time loan restructuring dilemma - RBI won’t commit, and India Inc won’t stop asking for it
If you have a bank loan that you are unable to pay, restructuring is on its way