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KV Kamath-led committee picks 26 sectors including tourism, aviation & hotels for loan restructuring

Tuesday, September 8, 2020, 12:30 Hrs  [IST]

A week after Finance Minister Nirmala Sitharaman asked banks and non-banking financial companies (NBFCs) to roll out a loan restructuring scheme for companies facing Covid-19-related stress, the Reserve Bank of India (RBI)-committee led by KV Kamath on Monday announced the financial parameters for the resolution plans under the scheme.

 

In its report the five member committee said power, construction, iron and steel, roads, real estate, wholesale trading, textiles, consumer durables, aviation, logistics, hotels, restaurants and tourism, mining are among the sectors that will need restructuring. The committee selected five financial parameters related to leverage, liquidity, debt serviceability etc.

 

The committee has made recommendations for 26 sectors that could be factored by lending institutions while finalizing loan resolution plans. The committee said banks could adopt a graded approach based on the severity of the coronavirus pandemic in a sector.

 

These ratios are total outside liabilities to adjusted tangible net worth, debt to EBITDA (earnings before interest, tax, depreciation and amortisation), current ratio, debt service coverage ratio (DSCR) and average DSCR. These ratios monitor how leveraged are companies, their cash flows and whether they can regain their ability to service debt.

 

The scheme was announced to bail out companies and organisations hit by the coronavirus and follow-up lockdowns. The central bank's announcement is based on the recommendations of the K V Kamath committee, which submitted its report last week.

 

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 had extended this for another three months until August 31. To manage the financial stress amid the lockdown, RBI had also permitted lenders a one-time restructuring of loans without classifying these as non-performing assets.

A high proportion of debt from the real estate, airlines, hotels, and other consumer discretionary sectors had been restructured, the largest contribution had been from infrastructure, power, and construction. The restructuring quantum from the corporate sector in FY21 could range between 3 per cent and 5.8 per cent of the banking credit, amounting to Rs 3.3-6.3 trillion, India Ratings said in a report. Even stressed assets that might not slip in the near term could be restructured, as Covid-19 would have aggravated stress.

 (Source: Media Reports)

(Source: Media Reports)

 
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