The Hindu

RBI sets sectoral norms for resolution of COVID-19 related stressed assets

‘Key financial ratios prescribed by Kamath panel intended to be floors or ceilings’

- Press Trust of India

The Reserve Bank on Monday specified five financial ratios and sector-specific thresholds for resolution of COVID-19 related stressed assets in 26 sectors, including auto components, aviation, and tourism.

The circular issued by the RBI for resolution of stressed assets is based on the recommenda­tions of the K.V. Kamath committee, which submitted its report on September 4. “The recommenda­tions of the Committee have been broadly accepted by the Reserve Bank,” RBI said in a release.

The key financial ratios suggested by the committee are total outside liabilitie­s/ adjusted tangible networth; total debt/EBITDA; current ratio, which is current assets divided by current liabilitie­s; debt service coverage ratio; and average debt service coverage ratio.

Specified sectors

The 26 sectors specified by the RBI include automobile­s, power, tourism, cement, chemicals, gems and jewellery, logistics, mining, manufactur­ing, real estate, and shipping among others.

The RBI said the ratios prescribed “are intended as floors or ceilings, as the case may be, but the resolution plans shall take into account the pre-COVID-19 operating and financial performanc­e of the borrower and impact of COVID-19 on its operating and financial performanc­e at the time of finalising the resolution plan, to assess the cashflows in subsequent years, while stipulatin­g appropriat­e ratios in each case.”

It also said lending institutio­ns may, at their discretion, adopt a graded approach depending on the severity of the impact on borrowers while implementi­ng the resolution plan.

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K.V. Kamath

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