RBI Resolution Framework For COVID-hit Assets: Expert Panel Led By KV Kamath Identifies 5 Key Ratios For 26 Sectors  K V Kamath

The Reserve Bank Of India announced that it has broadly accepted the report of an expert panel constituted by it to make recommendations on the required financial parameters to be factored in the resolution framework for Covid-hit assets.

The expert Committee, that was set up under the chairmanship of distinguished banker K.V. Kamath on Aug 7, submitted its report to the Reserve Bank on September 4.

The committee, headed by veteran banker KV Kamath, has recommended financial ratios for 26 sectors which could be factored in by lending institutions while finalising a resolution plan for a borrower.

The panel has recommended five key parameters for each sectors for lenders to decide the resolution. These include total outstanding liability divided by adjusted networth, total debt divided by Ebidta, debt service coverage ratio (DSCR), average DSCR and current ratio.

Key Ratios to be factored in the resolution plans
Key Ratios to be factored in the resolution plans
RBI

The panel identified 26 for the resolution framework are: Power, construction, iron and steel manufacturing, roads, real estate, trading wholesale, textiles, chemicals, consumer durables/FMCG, non-ferrous metals, pharma, logistcis, gems and jewellery, cement, auto components, hotels, mining, plastic products manufacturing, automobile manufacturing, auto dealership, aviation, sugar, port and port services, shipping, building materials, and corporate retail outlets.

Sector-specific thresholds (ceilings or floors, as applicable) of key ratios for 26 sectors  
Sector-specific thresholds (ceilings or floors, as applicable) of key ratios for 26 sectors  
RBI

The resolution plan may be prepared based on the pre-Covid-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance in Q1 and Q2FY21, to assess the cash-flows for FY21/FY22 and subsequent years.

“In these financial projections, the threshold TOL/Adjusted TNW and Debt/ Ebitda ratios should be met by FY23. The other three threshold ratios should be met for each year of the projections starting from FY22. The base case financial projections need to be prepared as part of resolution plan,” the committee said.

Besides Kamath, other members of the panel are banking consultants Ashvin Parekh, Diwakar Gupta, TN Manoharan and Sunil Mehta.

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