Only nine large firms' debt of Rs 59,000 crore recast by banks so far

Kamath panel approved all the nine proposals of banks

Nine firms, including three Future group companies, were approved by the KV Kamath committee for debt restructuring under the Reserve Bank of India’s one-time restructuring scheme of last year. The total debt of these nine firms was close to Rs 58,900 crore, bankers said.

All the nine proposals were cleared by the KV Kamath Panel, set up by the RBI to vet the proposals, without going into their commercial aspect. Banks were asked to send debt recast proposals to the panel for loans over Rs 1,500 crore.

Sources said only nine proposals were received by the Kamath Panel, all of which were approved. Apart from Future group firms, other companies' debt recast proposals that were  approved included Shapoorji Pallonji, Patel Engineering, MMTC Ltd, Ambience developers, among others.

“Nine groups with loans over Rs 1,500 crore each got restructured. The Kamath panel, after vetting the proposal approved them,” said a banker with direct knowledge of the development.

“The mandate for the panel was not to see the commercial aspects of the proposals. It only had to see that financial norms and due process have been followed,” the official said.

Data in the recent Financial Stability Report shows only 0.9 per cent of all loans were restructured. The micro, medium and small enterprises (MSME) sector saw the maximum debt recast at 1.7 per cent followed by corporate loans (0.9 per cent). Only 0.7 per cent of retail loans were restructured.

“…banks’ resorting to restructuring under the Covid-19 resolution framework was not significant and write-offs as a percentage of GNPA at the beginning of the year fell sharply as compared to 2019-20, except for private banks,” the FSR said.

“Contrary to expectation, the number of restructuring requests was low. That showed many businesses were not in need of restructuring. We were also pleasantly surprised that only a few proposals came,” said a banker involved with the debt recast scheme.

The Kamath panel identified 26 such sectors and suggested five financial parameters that should be taken into account by lenders for debt restructuring while finalising a resolution plan for a borrower.

These parameters include those related to leverage, liquidity and debt serviceability.

Bankers had termed some of the parameters stringent, such as a debt service coverage ratio (DSCR) of 1 or above, and a requirement for investment grade or ‘RP4’ rating. Such stringent requirements would keep many firms out of the ambit of debt recast, they argued.

The panel suggested financial parameters for debt recast for sectors like power, construction, iron & steel, roads, real estate, wholesale trading, textiles, consumer durables, aviation, logistics, hotels and restaurants, among others. Banks also have the option to offer debt recast to a company which is not part of these 26 sectors, but should have a board-approved plan for such cases.

The banking regulator had set December 31, 2020 as the deadline for invocation of the debt recast proposal under its resolution framework. Banks were given 180 days (from the date of invocation) to implement the resolution plan. The 180-day deadline ended on June 30.

Under the scheme, RBI had allowed banks to make fewer provisions for debt restructuring than required otherwise, in a move to incentivise lenders. Firms came under financial stress following the nationwide lockdown imposed last year to curb the spread of the Covid-19 pandemic.