RBI Broadly Accepts Kamath Panel Recommendations; Specifies Parameters for Loan Restructuring

The lenders can take into account five specific financial ratios and the sector-specific thresholds for each ratio in respect of 26 sectors while finalising the resolution plans, the RBI said. These key financial ratios suggested by the Kamath committee are Total Outside Liabilities / Adjusted Tangible Net Worth (TOL/ATNW); Total Debt / EBITDA; Current Ratio, which is current assets divided by current liabilities; Debt Service Coverage Ratio (DSCR); and Average Debt Service Coverage Ratio (ADSCR).

The 26 sectors specified by the RBI include automobiles, power, tourism, cement, chemicals, gems and jewellery, logistic, mining, manufacturing, real estate, and shipping, among others. The RBI said the ratios prescribed “are intended as floors or ceilings, as the case may be, but the resolution plans shall take into account the pre-Covid-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance at the time of finalising the resolution plan, to assess the cashflows in subsequent years, while stipulating appropriate ratios in each case”.

It also said given the differential impact of the pandemic on various sectors/entities, the lending institutions may, at their discretion, adopt a graded approach depending on the severity of the impact on the borrowers, while preparing or implementing the resolution plan.

The institutions will be expected to ensure compliance to TOL/ATNW agreed as per the resolution plan at the time of implementation itself, the RBI said, adding “nevertheless, in all cases, this ratio shall have to be maintained as per the resolution plan by March 31, 2022 and on an ongoing basis thereafter.”