Kamath panel identifies 26 sectors for loan recast

An expert committee of the Reserve Bank of India (RBI) on Monday recommended loan restructuring for 26 sectors that have been hit by Covid-19. The central bank has broadly accepted the recommendations.

The committee headed by K V Kamath, who was the former CEO of ICICI Bank, has suggested recast of loans of sectors that include power, aviation, construction, iron and steel manufacturing, roads, real estate, textiles, chemicals, consumer durables/FMCG, cement, logistics and mining.

Read: RBI sets up panel under Kamath to suggest steps to deal the coronavirus-related stressed assets

Loan restructuring is a process that allows financially distressed companies to reduce or renegotiate their debt.

The RBI, on August 7, 2020, had announced the formation of an expert committee to make recommendations on the required financial parameters to be factored in the resolution plans under the Resolution Framework for Covid-19-related Stress.

The committee has selected important financial parameters such as total debt, net worth, current ratio, debt service coverage ratio (DSCR) and average debt service coverage ratio (ADSCR) while considering the resolution plan.

The committee will scrutinise restructuring of loans above Rs 1,500 crore.

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Other members of the committee are former SBI executive Diwakar Gupta, Canara Bank chairman T N Manoharan, Ashvin Parekh, consultant and Indian Banks’ Association (IBA) CEO Sunil Mehta who is also a secretary to the committee.

In respect of sectors other than 26 defined in the report, the committee has said that certain ratios have not been specified and the lenders shall make their own assessment keeping in view the contours of the circular dated August 6 and the follow-up circular issued on Monday.

The committee said that the resolution framework may be invoked not later than December 31, 2020. The resolution plan needs to be implemented within 180 days from the date of invocation.

The committee said banks could adopt a graded approach to loan recast based on the severity of the pandemic in a sector. The committee has recognised that the Covid-19 pandemic has affected the best of companies. These businesses were otherwise viable under pre-Covid-19 scenario. Impact is pervasive across several sectors but with varying severity — mild, moderate and severe, the report said.