A week after Finance Minister Nirmala Sitharaman asked banks and non-bank financial companies (NBFC) to implement a loan restructuring plan for companies facing stress related to Covid-19, the Bank of The Reserve of India (RBI) announced on Monday the financial parameters for resolution plans under the scheme.
The committee has made recommendations for 26 sectors that lenders could consider when finalizing loan resolution plans. The committee said banks could take a gradual approach based on the severity of the coronavirus pandemic in a sector.
The plan was announced to rescue companies and organizations affected by the coronavirus and follow-up closures. The central bank’s announcement is based on the recommendations of the KV Kamath committee, which presented its report last week.
In his interview with CNBC-Awaaz, RBI Governor Shaktikanta Das had said that banks could extend the loan default by three, six, or even 12 months with a one-time restructuring. The moratorium was initially granted to alleviate the hardships borrowers faced during the pandemic.
Initially, the RBI had allowed lenders to grant a three-month moratorium on loans in equivalent monthly installments (EMI) due between March 1 and May 31, 2020. Later, it had extended it for another three months until August 31st. Amid the lockdown, the RBI had also allowed lenders a one-time restructuring of loans without classifying them as non-performing assets.
A high proportion of debt in the real estate, airline, hotel and other consumer discretionary sectors had been restructured; the largest contribution came from infrastructure, energy and construction. The amount of corporate sector restructuring in fiscal year 21 could range from 3 percent to 5.8 percent of bank credit, amounting to Rs 3.3-6.3 trillion, India Ratings said in a report. . Even stressed assets that might not fall in the short term could be restructured, as Covid-19 would have compounded the stress.
At least Rs 210,000 crore (1.9 per cent of bank credit) of non-corporate loans are likely to undergo restructuring after the announcement, which would have otherwise slipped into the category of unprofitable assets, India Ratings said. in your report.
The finance minister had previously urged lenders to immediately implement a board-approved policy for resolution at the review meeting with heads of scheduled commercial banks and NBFCs via video conferencing. He had told lenders that borrowers should be supported and that Covid-19-related distress should not affect lenders’ assessment of their creditworthiness when the moratorium on loan repayments is lifted.
Sectors selected for resolution by the committee:
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