KV Kamath committee recommends 26 sectors for Loan Restructuring Scheme

The Reserve Bank have accepted the recommendations of the KV Kamath Committee on ‘Resolution Framework for Covid19-related Stress’ which was submitted by panel on September 4, 2020.

Key Facts

• The Committee has recommended the financial ratios for 26 sectors which could be taken into consideration by lending institutions while finalizing a resolution plan for a borrower. Though the committee has not specified the amount to be used for restructuring.
• The 26 sectors are- Power, Construction, Iron & Steel Manufacturing, Roads, Real Estate, Trading-Wholesale Textiles, Chemicals, Consumer Durables/FMCG, Non-ferrous Metals, Pharmaceuticals Manufacturing, Logistics Gems & Jewellery, Cement, Auto Components, Hotel, Restaurants, Tourism, Mining, Plastic Products Manufacturing, Automobile Manufacturing, Auto Dealership, Aviation, Sugar, Port & Port services, Shipping, Building Materials, Corporate Retail Outlets

Key Findings by the Committee

• The sectors like textiles, wholesale trade, roads and engineering are most-affected by pandemic.
• The sectors undergoing the stress such as non-banking financial companies, real estate, steel prior to COVID-19 have been affected most.
• The food, agriculture, pharma and IT sectors hardly face the impact of COVID-19.

Key recommendations of the Committee

• It has recommended to keep the debt coverage ratio to one and more than one.
• It suggests, lenders should consider total outstanding liabilities, total debt, current ratio and the average debt service coverage ratio.
• It recommends to the banks that they should consider financial state of the company prior to the COVID-19 pandemic to restructure the loan.
• The committee also has recommended to make the Inter-Creditor agreement mandatory in cases involving multiple lending institutions.