The committee appointed by the Reserve Bank of India (RBI) on Monday released its report on loan restructuring as part of the Resolution Framework for COVID-19 Related Stress, identifying 26 sectors that lending institutions should consider when determining resolution plans for borrowers.
As per the report, the resolution under this framework would be extended only to borrowers having stress on account of COVID-19. “Only those borrowers which were classified as standard and with arrears less than 30 days as at March 1, 2020 are eligible under the Framework.”
The 26 sectors 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.
As per the general guidelines, the residual tenor of the loan may be extended by maximum 2 years with or without payment moratorium. The moratorium period, if granted, shall come into force immediately upon implementation of the RP.
RBI had on August 7, 2020 announced the constitution of an Expert Committee under the chairmanship of K.V. Kamath to make recommendations on the required financial parameters to be factored in the resolution plans under the framework.
The Committee has since submitted its report to the Reserve Bank on September 4, 2020 which is being placed on the RBI website. The Committee has recommended financial parameters that, inter alia, include aspects related to leverage, liquidity and debt serviceability. The Committee has recommended financial ratios for 26 sectors which could be factored by lending institutions while finalizing a resolution plan for a borrower.
The recommendations of the Committee have been broadly accepted by the Reserve Bank. Accordingly, a follow up circular to the Resolution Framework guidelines announced in August 6, 2020, has been issued today by the Reserve Bank specifying five specific financial ratios and the sector-specific thresholds for each ratio in respect of 26 sectors to be taken into account while finalising the resolution plans. In respect of other sectors where certain ratios have not been specified, the lenders shall make their own assessment keeping in view the contours of the circular dated August 6, 2020 and the follow-up circular issued today.
