Last August, RBI permitted the one-time restructuring of corporate advances and personal loans
Some of the stressed companies that qualified for debt recast under the central bank’s resolution framework may struggle to meet the K.V. Kamath committee’s financial parameters within the extended deadline, banks with large exposures to these firms said.
The companies may need more time to sell their assets and pay down their debt because of the covid pandemic and an economic downturn, the lenders said. What these companies need, bankers said, is more hand-holding to help tide them over this period.
In its policy meeting held last week, RBI extended the deadline for stressed companies to meet the parameters related to operational performance to 1 October 2022. However, it asked companies to comply with the parameters of ‘total outside liabilities’/‘adjusted total net worth’, which reflect the debt-equity mix, by the earlier deadline of 31 March 2022.
“Some of the financial parameters related to operational performance are quite strict and may be difficult to comply with. Many companies have been unable to monetize their assets as part of the restructuring plan due to the impact of the second covid wave. The second wave has impacted the already stressed corporates," said a senior banker with a large public sector bank, who asked not to be named.
Banks had referred nine large corporate loan restructuring proposals to a committee set up by RBI under its resolution framework. Some large cases, such as Shapoorji Pallonji and Future Group, were approved for one-time restructuring under the five-member committee headed by Kamath.
In August last year, RBI permitted one-time restructuring of corporate advances and personal loans amid concerns of a spike in bad loans due to the pandemic. To deal with the corporate restructuring, RBI appointed the Kamath committee, which recommended sector-specific financial parameters that would serve as boundary conditions for the resolution plan.
The committee specified different thresholds across 26 sectors impacted by the pandemic. They include total outside liabilities/adjusted tangible net worth, total debt/Ebitda, current ratio, debt service coverage ratio and average debt service coverage ratio. It was tasked with clearing large restructuring proposals involving a debt of more than ₹1,500 crore.
Another senior banker said banks sought some relaxation from RBI for borrowers impacted by the second wave. However, the regulator ignored these suggestions as they felt the impact has not been severe.
In last week’s policy, deputy governor M.K. Jain said RBI has noted the rising stress among retail and small borrowers. But, he added, the sector is well capitalized and, “Yes, there is visibility on a little bit of stress from the past data, but definitely it’s not alarming. We are constantly engaged with the regulated entities, particularly the outlier banks and the outlier NBFCs (non-banking financial companies), and we also conduct stress tests."
According to the RBI’s Financial Stability Report of July 2021, the share of large borrowers in the aggregate loan portfolio of banks stood at 52.7% in March 2021, but they account for a share of 77.9% of the total gross non-performing assets (up from 73.5% in September 2020)
Some bankers said large companies were not as severely hit by the second wave as retail and SME segments. “When you do some restructuring, certain financial covenants would be adhered to in some time. Given the second wave, there may be a postponement in meeting some parameters. The fundamental cause of restructuring when it comes to large corporates has not been impacted. To my mind, what has been done should be okay," said Sanjiv Chadha, managing director and chief executive officer, Bank of Baroda.
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