The Reserve Bank of India announced the constitution of an Expert Committee under the chairmanship of Shri K.V. Kamath to make recommendations on the required financial parameters to be factored in the resolution plans under the ‘Resolution Framework for Covid19-related Stress’ along with sector specific benchmark ranges for such parameters.
Daily Current Affairs Quiz 2020
Key-Points
RBI specified five financial ratios and sector-specific thresholds for resolution of COVID-19-related stressed assets in 26 sectors, including auto components, aviation and tourism.
The circular issued by the Reserve Bank for resolution of the stressed assets is based on the recommendations of the K.V. Kamath Committee, which submitted its report on 4th of September.
The 26 sectors specified by the RBI include automobiles, power, tourism, cement, chemicals, gems and jewellery, logistics, mining, manufacturing, real estate, and shipping among others.
Five financial metrics need to be taken into account while deciding on a recast plan:
- Total outstanding liabilities/ adjusted tangible net worth,
- Total debt/Ebitda,
- Current ratio,
- Debt service coverage ratio, and
- Average debt service coverage ratio.
For each of these parameters, RBI has prescribed either a floor or a ceiling.
The committee sets 180 days to implement the plan and makes an inter creditor agreement (ICA) mandatory. The tenure of a loan may be extended by a maximum of two years, with or without a moratorium.
The resolution process shall be treated as invoked once lenders representing 75% by value and 60% by number agree to invoke the same.
