Article:
In an impactful stride amidst the Covid-19 pandemic, the Reserve Bank of India (RBI) has instituted a committee under the stewardship of K.V. Kamath. This committee is designed to be a remedial measure, focused on restructuring the loans affected dramatically by the novel Coronavirus.
Committee’s Objective
The primary goal of this committee lies in recommending parameters for the one-time restructuring of corporate loans. The committee is also charged with formulating sector-specific resolution plans. These bespoke plans will account for all cases with a total loan exposure surpassing Rs.1,500 crore.
Time Frame for Recommendations
The Kamath-led committee has been given a deadline of 30 days within which it is expected to present its recommendations to the RBI.
The Backdrop
The instigation of this committee comes in the aftermath of the recent Monetary Policy report in which RBI granted banks the permission to restructure loans. This move seeks to alleviate the mounting pressure on the incomes and balance sheets of robust corporates and Micro, Small and Medium Enterprises (MSMEs), as well as individual borrowers.
The Rationale Behind Loan Restructuring
The reason for taking such a step primarily pertains to the predicament many firms find themselves in during these unprecedented times. Even businesses with a commendable track record are grappling with escalating debt burdens that outweigh their ability to generate cash flow. This discordance poses grave risks to their long-term survival and could potentially culminate in significant financial instability if left unchecked. Additionally, it could stimulate a surge in Non-Performing Assets.
Eligibility Criteria for Loan Restructuring
The option for loan restructuring is available only to those borrowers whose accounts were identified as standard and had not defaulted for more than 30 days with any lending institution as of 1st March, 2020. All other accounts shall be deemed eligible for the restructuring under the Prudential Framework issued by RBI in 2019 or relevant instructions applicable to certain categories of lending institutions where the prudential framework does not apply.
The Role of Moratorium in Loan Restructuring
The restructuring schemes may or may not incorporate a moratorium on installment repayments. The RBI has deferred this decision to banks, enabling them to prevent such loans from slipping into non-performing assets.
In forming this committee and allowing for loan restructuring, the RBI displays a proactive approach to tackling the economic fallout spurred by the Covid-19 pandemic. It is imperative to monitor how these measures fare in stabilizing India’s economy in the coming months.
Source: TH