Reserve Bank of India gives corporate borrowers 6 more months to meet debt recast guidelines – The Financial Express

Clipped from: https://www.financialexpress.com/industry/banking-finance/reserve-bank-of-india-gives-corporate-borrowers-6-more-months-to-meet-debt-recast-guidelines/2306130/

Vivek Iyer, partner and national leader-financial services risk advisory, Grant Thornton Bharat, said, “We need to be patient and study how the coming few months pan out. Since economic data comes out with a lag, the extra time would allow banks to make a sharper assessment.”

Experts also pointed out that RBI had given the relaxations as the earnings of companies were impacted due to the second wave of Covid-19.Experts also pointed out that RBI had given the relaxations as the earnings of companies were impacted due to the second wave of Covid-19.

The Reserve Bank of India (RBI) on Friday allowed corporate borrowers six more months to meet certain operational thresholds outlined by the KV Kamath committee under Covid-19 debt recast scheme. The relaxation has been provided by the central bank upon recognising the adverse impact of second Covid wave on revival of businesses. The financial parameters were earlier required to be met till March 31, 2022, by companies that took the benefit of the debt recast scheme.

“Recognising the adverse impact of the second wave of Covid-19 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,” RBI governor Shaktikanta Das said on Friday.

Last September, the Kamath committee had recommended financial ratios for 26 sectors that had to be factored in by lending institutions while finalising a resolution plan for a borrower. Of these parameters, the thresholds in respect of total debt to EBIDTA (earnings before interest, taxes, depreciation, and amortisation) ratio, current ratio, debt service coverage ratio and average debt service coverage ratio are related to operational performance of the company. The 26 sectors specified by the Reserve Bank of India (RBI) included automobiles, power, tourism, cement, chemicals, gems and jewellery, logistics, mining, manufacturing, real estate, and shipping, among others.

According to bankers, the move by RBI will address the difficulties faced by businesses in their revival. SS Mallikarjuna Rao, MD and CEO of Punjab National Bank (PNB), said deferral for achievement of financial parameters under Resolution Framework 2.0 will address the revival difficulties faced by businesses in meeting the operational parameters.

Experts also pointed out that RBI had given the relaxations as the earnings of companies were impacted due to the second wave of Covid-19.

Vivek Iyer, partner and national leader-financial services risk advisory, Grant Thornton Bharat, said, “We need to be patient and study how the coming few months pan out. Since economic data comes out with a lag, the extra time would allow banks to make a sharper assessment.”

Anil Gupta, VP and sector head, financial sector ratings, Icra, said as earnings of companies have been impacted because of the second wave, achieving financial parameters related to profitability could be a challenge in FY2022. As per Icra’s estimates, the corporate loan restructuring implemented by banks is estimated to be Rs 70,000 crore.mail logo

Subscribe to Financial Express’ weekly SME newsletter for latest and all-round coverage from the world of the biggest business in India – the Micro, Small and Medium Business.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s