Move will offer ‘significant’ relief to corporate borrowers, say experts
With the second wave of the Covid-19 pandemic creating a fresh set of challenges, the Reserve Bank of India has decided to defer the deadline for achievement of four financial parameters under Resolution Framework 1.0 for Covid-related stress by six months to October 1, 2022.
“Recognising the adverse impact of the second wave and the resultant difficulties on revival of businesses and in meeting the operational parameters, it has been decided to defer the target date for meeting the specified thresholds in respect of the above four parameters to October 1, 2022,” said RBI Governor Shaktikanta Das on Friday.
The resolution framework announced in August last year requires sector-specific thresholds to be met for certain financial parameters.
Of these, the thresholds of four parameters relate to the operational performance of the borrowing entities, including total debt to EBIDTA ratio, current ratio, debt service coverage ratio and average debt service coverage ratio.
“As regards the parameter total outside liabilities / adjusted total net worth, this reflects the revised capital structure (that is the debt-equity mix) as required under the implementation conditions for the resolution framework, and was expected to be crystallised upfront as part of the resolution plan,” said the Statement on Developmental and Regulatory Policies, adding that the deadline for this remains unchanged at March 31, 2022.
To issue circular
The RBI will issue a circular modifying the earlier guidelines. Experts said the move will give significant relief to corporate borrowers.
“As the earnings of the companies have been impacted because of the second wave, achieving financial parameters related to profitability could be challenge in 2021-22. Deferral of some of the financial parameters related to profitability will provide relief to corporate borrowers who have availed restructuring,” said Anil Gupta, Vice-President and Sector Head, Financial Sector Ratings, ICRA.