Kamath panel framework may just postpone stress
In the absence of an economic revival and sector-specific packages to be introduced by the government, the new mechanism will also end up inducing uncertainty in the credit markets: Experts
Mumbai: The KV Kamath panel's loan recast recommendations are better than the erstwhile corporate debt restructuring (CDR) mechanism, but these may result in banks postponing recognition of stress through short-term relief, analysts said on Tuesday.
In the absence of an economic revival and sector-specific packages to be introduced by the government, the new mechanism will be challenging and may also end up induce uncertainty in the credit markets as banks focus on working out the recast plans in the limited window, they said.
The Reserve Bank of India (RBI) has operationalised the guidelines from Tuesday, which give relief to 26 listed sectors affected by the coronavirus pandemic and stress on banks factoring in leverage, liquidity and debt serviceability before admitting a case.
The framework is for a limited time-period and stresses upon upfront heavy provisioning, stringent financial thresholds for eligibility and supervisory mechanism, analysts at the domestic brokerage Emkay said, terming it as far better than CDR.
The Reserve Bank of India (RBI) on Monday evening broadly accepted the recommendations of the KV Kamath-led Expert Committee on Resolution Framework for Covid-19-related stress.
The expert committee has recommended financial parameters including aspects related to leverage, liquidity and debt serviceability. It has suggested financial ratios for 26 sectors, which can be factored by lenders while finalising a resolution plan for a certain borrower.
The sectors identified by the panel include auto components, auto manufacturing, aviation, cement, construction, pharma manufacturing, power, real estate, consumer durables, hotels, restaurants and tourism among others. The committee selected five parameters based on their relevance while considering the resolution plan.