The Reserve Bank of India (RBI) had appointed the KV Kamath Committee Loan Restructuring expert panel to provide recommendations on the financial aspects to be factored in for restructuring loans (one-time only) which were adversely impacted by the Covid-19 induced situation. The panel was entrusted with report preparation for outlining a resolution framework to enable financial lending agencies to implement the RP (Resolution Plan) for suitable standard corporate exposure without ownership change.
KV Kamath Committee Loan Restructuring Panel History
After the onset of Covid-19, many corporate lenders and NBFCs (Non-Banking Financial Corporations) were experiencing difficulty recovering industry loans. This was because core industries were severely hit by operation disruptions necessitated by the implementation of preventive measures announced by the government. After taking stock of the situation, RBI announced the development of a Prudential Framework for resolving stressed assets under the KV Kamath Committee Loan Restructuring panel on 7th June 2019. On 6th August 2020, after releasing its Monetary Policy Statement, RBI read out the Resolution Framework for Covid-19 related Stress' through the Statement on Developmental and Regulatory Policies.
KV Kamath Committee Loan Restructuring Panel - Overview
The KV Kamath Committee Loan Restructuring Panel comprised the following experts -
- K V Kamath - Chairperson
- Diwakar Gupta - Member (from 1st Sep 2020)
- T N Manoharan - Member (from 14th Aug 2020)
- Ashvin Parekh - Member
- Sunil Mehta - Member Secretary
The expert committee was tasked to -
- Engage in the identification of adequate financial parameters related to debt serviceability, liquidity, leverage, etc., that lending institutions should include in finalized RP within the Resolution Framework.
- Set down ranges for the above parameters based on sectors for serving as RP's boundary conditions.
- Recommend all-important financial/ non-financial parameters relevant to RP within the framework contour.
- Validate RP process for those borrowers who had exposed lending institutions to aggregate INR 1500 crore or more loan liabilities during resolution invocation time.
- Verify RP to ensure conformance to conditions laid down in resolution without causing interference to lender exercised commercial judgment.
The term of the committee was 30th June 2021, and the report was to be submitted within a month to RBI.
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Highlights of Resolution Framework Proposed by the KV Kamath Committee
The important highlights of the KV Kamath Committee Loan Restructuring Panel have been enlisted below -
- For RP, parameters considered were Total Outside Liability / Adjusted Tangible Net Worth (TOL / Adjusted TNW),' Total Debt / EBIDTA,' Current Ratio,' DSCR (Debt Service Coverage Ratio),' and ADSCR (Average Debt Service Coverage Ratio).'
- The committee found 26 sectors most hurt by Covid-19 (Power, construction, iron and steel manufacturing, roads, real estate, trading wholesale, textiles, chemicals, consumer durables/FMCG, non-ferrous metals, pharma, logistics, 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).
- Standard borrowers should have arrears lesser than a month on 1st March 2020.
- Invocation of RP will be valid if 75% (by value) and 60% (by number) lenders agree.
- Lenders can keep a 10% provision.
- The remaining loan tenure can be extended by two years maximum with an optional moratorium.
- Any default by a borrower would lead to downgrading its assets to NPA from the RP implementation date.
The KV Kamath Committee Loan Restructuring Panel allowed the invocation of the resolution framework before 31st December 2020, and the RP had to be implemented within six months. If net exposure was higher than INR 100 crore, the lender had to obtain ICE (Independent Credit Evaluation) by RBI accredited credit rating agency.
FAQs on KV Kamath Committee Loan Restructuring
Q 1. Who headed the KV Kamath Committee Loan Restructuring Panel?
The KV Kamath Committee Loan Restructuring Veteran Banker Shri K.V. Kamath was the head of the committee that had four other members.
Q 2. What was the tenure of the KV Kamath Committee Loan Restructuring Panel?
The tenure of the KV Kamath Committee Loan Restructuring Panel was 7th Jun'2019 - 30th Jun'2021.
Q3. What was the purpose of the KV Kamath Committee Loan Restructuring Panel?
The KV Kamath Committee Loan Restructuring Panel had to identify the most affected sectors by Covid-19 and then recommend a resolution plan for financial institutions and NBFCs to provide a moratorium for loan repayment by these sectors.
Q 4. How many impacted sectors were identified by the KV Kamath Committee Loan Restructuring Panel?
The KV Kamath Committee Loan Restructuring Panel identified 26 impacted sectors.
Q 5. Till when could the RP of the KV Kamath Committee Loan Restructuring Panel be invoked?
The KV Kamath Committee Loan Restructuring had to be invoked by 31st December 2020.