NEW DELHI: The Reserve Bank of India (RBI) released on Monday a report from the KV Kamath Committee that was formed to make recommendations on the financial parameters required to be considered in resolution plans under the ‘Resolution Framework for the Covid-related stress’.
In an official statement, the RBI said that the Committee recommended five financial ratios and sector-specific thresholds for 26 sectors that could be considered by lenders while finalizing a resolution plan for a borrower. These include aspects related to leverage, liquidity and debt service capacity.
The committee’s recommendations have been widely accepted by the Reserve Bank, it said in the statement.
The framework allows lenders, including NBFCs, which are an essential part of the pool of lenders in this framework, to implement a resolution plan (PR) with respect to eligible corporate exposure, even without change of ownership, while classifying such exposure as standard, subject to specified conditions.
Key financial ratios suggested by Kamath’s committee include total external liabilities / adjusted tangible equity (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, energy, tourism, cement, chemicals, gems and jewelry, logistics, mining, manufacturing, real estate, and shipping, among others.
“The sector-specific parameters can be considered as a guide for the preparation of a resolution plan for a borrower in the specified sector. The resolution plan can be prepared based on the borrower’s pre-Covid-19 financial and operational performance and impact. of Covid-19 in its operational and financial performance in the first and second quarters of fiscal year 21, to evaluate cash flows for fiscal year 21/22 and beyond, “the report noted.
The central bank said the indices would provide a necessary assessment framework for the resolution plan.
However, with respect to sectors where the Committee has not specified threshold parameters, lenders may carry out their own internal assessments for solvency ratios, taking into account the outlines of the circular dated August 6, 2020 and the follow-up circular issued. today, the central bank added.
He also said that, given the differential impact of the pandemic in various sectors / entities, lenders may, at their discretion, adopt a graded approach according to the severity of the impact on borrowers, while preparing or implementing the resolution plan.
On August 7, the RBI had announced the constitution of a panel under the chairmanship of veteran banker KV Kamath to make recommendations on the required financial parameters to be taken into account in the ‘Resolution Framework for Covid-related stress19’ together with the industry-specific reference ranges. .
(With contributions from the agency)
In an official statement, the RBI said that the Committee recommended five financial ratios and sector-specific thresholds for 26 sectors that could be considered by lenders while finalizing a resolution plan for a borrower. These include aspects related to leverage, liquidity and debt service capacity.
The committee’s recommendations have been widely accepted by the Reserve Bank, it said in the statement.
The framework allows lenders, including NBFCs, which are an essential part of the pool of lenders in this framework, to implement a resolution plan (PR) with respect to eligible corporate exposure, even without change of ownership, while classifying such exposure as standard, subject to specified conditions.
Key financial ratios suggested by Kamath’s committee include total external liabilities / adjusted tangible equity (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, energy, tourism, cement, chemicals, gems and jewelry, logistics, mining, manufacturing, real estate, and shipping, among others.
“The sector-specific parameters can be considered as a guide for the preparation of a resolution plan for a borrower in the specified sector. The resolution plan can be prepared based on the borrower’s pre-Covid-19 financial and operational performance and impact. of Covid-19 in its operational and financial performance in the first and second quarters of fiscal year 21, to evaluate cash flows for fiscal year 21/22 and beyond, “the report noted.
The central bank said the indices would provide a necessary assessment framework for the resolution plan.
However, with respect to sectors where the Committee has not specified threshold parameters, lenders may carry out their own internal assessments for solvency ratios, taking into account the outlines of the circular dated August 6, 2020 and the follow-up circular issued. today, the central bank added.
He also said that, given the differential impact of the pandemic in various sectors / entities, lenders may, at their discretion, adopt a graded approach according to the severity of the impact on borrowers, while preparing or implementing the resolution plan.
On August 7, the RBI had announced the constitution of a panel under the chairmanship of veteran banker KV Kamath to make recommendations on the required financial parameters to be taken into account in the ‘Resolution Framework for Covid-related stress19’ together with the industry-specific reference ranges. .
(With contributions from the agency)
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