Corporate

RBI norms may exclude several companies from loan recast scheme

RBI norms may exclude several companies from loan recast scheme

RBI norms may exclude several companies from loan recast scheme

MUMBAI: RBI norms may exclude several companies from loan recast scheme – As per the new regulations to exclude an outsized number of companies as bankers, RBI’s norms on corporate loan restructuring are likely to expect advances worth only Rs 2-3 lakh crore will qualify for recast.
To see into the parameters within which restructuring are often allowed by a five-member committee headed by K V Kamath, constituted by the RBI too, has submitted its recommendation to the financial institution and lenders will approach their boards once the report is released.

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Bankers said corporates that are lax in repayments before March 2020 won’t qualify for restructuring albeit they’re not non-performing assets (NPAs).

India Ratings has said that 7.7% of bank loans (Rs 8.4 lakh crore) would wish a restructuring of which non-corporate would be just 1.9%. The rating agency also said that loans of over Rs 5 lakh crore would slip into NPA if they’re not restructured.
After appointing the expert committee had said that only those borrower accounts, which were classified as standard and not in default for quite 30 days with the financial institution as on March 1, 2020, are going to be eligible for resolution under this framework.

Bankers said that an outsized portion of the strain within the banking industry has been addressed through the insolvency and bankruptcy code (IBC). Borrowers that were facing stress even before the pandemic are excluded due to the 30-day overdue clause. Bankers said that stressed corporates typically delay payments and make use of the headroom available whilst they avoid the NPA tag.

This means that only those businesses that were doing well before lockdown, but face trouble thanks to COVID are going to be entertained. These include hospitality and retail land, as malls have seen zero revenue during the lockdown. It also includes build-operate-transfer projects like toll roads, where revenues disappeared within the initial months.

Some well-performing power projects were also hit due to the state government’s ability to buy power in time. Those hit by global disruptions include the gems and jewelry segment and therefore the textile sector, which were hit by global disruptions, restructuring quantum from the company sector in amounting to Rs 3.3-6.3 lakh crore.
“Even stressed assets which will not stick in the near term might be restructured as COVID would have aggravated stress of restructuring/slippages. The balance 47% is at moderate risk of restructuring, and therefore the progress on these accounts will depend on the progress of COVID situation,” the rating agency said.

While a high proportion of the debt from the important estate, airlines, hotels, and other consumer discretionary sectors is probably going to be restructured, the most important contribution would be from infrastructure, power, and construction, India Ratings said.

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