RBI formed five member committee on loan restructuring

Reserve Bank of India (RBI) has formed a five member committee under the chairmanship of former ICICI Bank CEO KV Kamath to make recommendations on the financial parameters to be considered in the restructuring of loans impacted by the Covid 19 pandemic. The Committee is tasked to recommend parameters for one-time restructuring of corporate loans.

Daily Current Affairs Quiz 2020

Key-Points

In the recent Monetary Policy report, RBI has allowed banks to restructure loans to reduce the rising stress on incomes and balance sheets of large corporates, Micro, Small and Medium Enterprises (MSMEs) as well as individuals.

A large number of firms that otherwise maintain a good track record are facing the challenge as their debt burden is becoming disproportionate, relative to their cash flow generation abilities.

This can potentially impact their long-term viability and pose significant financial stability risks if it becomes widespread. It may also lead to an increase in Non-Performing Assets.

Only those borrowers will be eligible for restructuring whose accounts were classified as standard and not in default for more than 30 days with any lending institution as on 1st March, 2020.

All other accounts will be considered for restructuring under the Prudential Framework issued by the RBI in 2019, or the relevant instructions as applicable to specific categories of lending institutions where the prudential framework is not applicable.

The restructuring efforts may or may not include a moratorium on instalment repayments. RBI has left the decision of moratorium on banks, with an eye on averting such loans from slipping into non-performing assets.