RBI approves Kamath-led panel’s suggestions on resolving Covid-linked stress on loan restructuring

The Reserve Bank of India (RBI) has approved the recommendations of the K.V. Kamath-led Expert Committee on Resolution Framework for Covid-19-related stress. The KV Kamath committee has come out with guidelines for 26 sectors including the real estate sector.

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 scheme was announced to bail out companies and organisations hit by the coronavirus. The K V Kamath committee that submitted its report last week selected five parameters based on their relevance while considering the resolution plan.

RBI Governor Shaktikanta Das said that banks can extend the loan moratorium by 3, 6 or even 12 months under the one-time restructuring in order to mitigate the hardships faced by the borrowers.

The RBI had initially allowed lenders to grant a loan moratorium for three months on equated monthly instalments (EMIs) falling due between March 1 and May 31, 2020. Later, it extended this period for another three months until August 31. Later, the RBI permitted lenders a one-time restructuring of loans without classifying these as non-performing assets. Only those companies and individuals whose loans accounts are in default for not more than 30 days as on 1 March, 2020, are eligible for one-time restructuring. For corporate borrowers, banks can invoke a resolution plan till 31 December, 2020 and implement it till 30 June, 2021.

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% by value and 60% 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 Centre and RBI have informed the Supreme Court that the moratorium period on repayment of loans amid the COVID-19 pandemic is extendable by two years. Finance Minister Nirmala Sitharaman earlier asked bankers to roll out loan resolution schemes by September 15.