The Indian economy was not in good shape even before the Covid-19 outbreak, which has only made things worse. The report by the Reserve Bank of India (RBI) committee of experts on a resolution framework, headed by former ICICI Bank chief KV Kamath, makes this clear. The report notes that the pandemic “has hit the best companies” and businesses that were otherwise viable before the outbreak. Experts believe that banks may be more risk averse to restructure loans this time, as they have suffered heavy losses in previous restructuring efforts.
₹ 15.5 lakh crore: Exclusive Covid-19 addition to stressed debt
Nineteen sectors, which were not under stress before the pandemic but have hit it, represent 15.5 crore of debt. Retail and wholesale trade is the worst hit with an outstanding debt of Rs 5.4 million lakh. The pandemic also affected 11 sectors that were already under pressure. These sectors have a debt of Rs 22.2 million lakh. Non-bank finance companies (NBFCs) have the highest, Rs 7.98 lakh crore, among these sectors. Agriculture and related products are the biggest ray of light in India’s debt landscape. This sector has a debt of Rs 9.8 million lakh. Before the pandemic, it was stress-free and continues to be.
Up to half of stressed companies do not meet restructuring criteria
Kamath’s committee has specified sector-specific ratios on five main parameters: total outstanding liability at adjusted net worth, total debt to earnings before interest, taxes, depreciation and amortization (EBITDA), current ratio (current assets divided by current liabilities) , debt service coverage ratio, and average debt service coverage ratio to decide if companies will be eligible for loan restructuring. A Nomura analysis of 5,179 companies in 25 sectors shows that 30-50% of them do not meet the necessary criteria in retrospective data. 
Huge write-offs in past restructurings could make banks more risk averse
The Nomura report expects risk aversion to rise among banks given their poor experience in previous restructuring cycles. “We believe that banks will be much more cautious towards restructuring in this cycle compared to previous restructuring cycles where final slip-ups / cancellations were as high as 70-75% in the corporate segment,” the report said. This is bad news for the industry.
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