RBI extends liquidity lifelines to distressed firms
The move to ease debt mutual fund investment norms and allow one-time loan recast will open up borrowing avenues for India Inc. and allow them options to service their debt
nMUMBAI: Companies struggling to service their debt amid the Covidinduced economic disruptions received a lifeline with the Reserve Bank of India on Thursday allowing a one-time restructuring of loans. They can restructure the loans without diluting promoter stake or losing control.
Besides, the central bank’s move to ease the norms to invest in debt mutual funds will incentivise banks to lend more to corporates (beyond super rated) through bonds, something that stalled in the wake of Covid-19. “It has been decided to provide a window under the June 7 prudential framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures—without change in ownership, while classifying such exposures as standard assets, subject to specified conditions,” said RBI governor Shaktikanta Das.
Key sectors, such as micro, small and medium enterprises (MSMES), hospitality, aviation, retail, real estate and auto, which are facing severe financial stress due to the pandemic, will benefit from the move.
Over the past five months, bodies made several submissions to the government and RBI to highlight the stressed financial situation and the need for addressing mounting debt.
Loan restructuring will not only help India Inc. but also the banking sector. Banks have huge exposure to the stressed sectors and, if they fail to get back on their feet, a significant portion of the loans would turn into non-performing assets.
“The current retail sales have been around 40% of last year. Loan restructuring will help retail get back on its feet to fight the economic crisis that has fallen on this sector,” said Kumar Rajagopalan, chief executive, Retailers Association of India.
This restructuring plan will also enable lenders to implement a resolution plan in respect of eligible corporate debtors without change in ownership, while clasindustry sifying such exposures as standard, if they meet certain conditions.
“Sectors that are highly stressed due to the impact of Covid-19 are in dire need of such restructuring,” said Uday Kotak, president, Confederation of Indian Industry.
“The restructuring of MSME accounts will provide the necessary relief to the sector, which has experienced one of the most severe impact resulting from the conditions of lockdown, containment, reverse migration, supply chain and trade choking due to Covid-19,” he added.
According to Ajay Shaw, Partner, DSK Legal, the restructuring is conditional to ensure only genuine cases get the benefit.
“These conditions have been stipulated in order to ensure that window is available to only pandemic-related stress,” said Shaw.
Another avenue to raise funds is from the capital markets through bond issuances.
Due to a complete risk aversion from banks, mutual fund and insurance companies, issuers with lower rated bonds found hardly any investors and most of the liquidity infused by RBI over the past five months has gone to only high rated issuers, AA rated and above.