KV Kamath committee recommends 26 sectors for Loan Restructuring Scheme

September 8, 2020

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.

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