Kamath committee picks 26 sectors for loan restructuring, says RBI

Central bank allowed lenders to grant loan moratorium for three months on EMIs falling due between March 1 and May 31; it later extended the scheme until August 31

A week after Finance Minister Nirmala Sitharaman asked banks and non-banking financial companies (NBFCs) to roll out a loan restructuring scheme for companies facing Covid-19-related stress, the Reserve Bank of India (RBI) on Monday announced the financial parameters for the resolution plans under the scheme.

The committee has made recommendations for 26 sectors that could be factored by lending institutions while finalizing loan resolution plans. The committee said banks could adopt a graded approach based on the severity of the coronavirus pandemic in a sector. 

The scheme was announced to bail out companies and organisations hit by the coronavirus and follow-up lockdowns. The central bank's announcement is based on the recommendations of the K V Kamath committee, which submitted its report last week.

In his interview with CNBC-Awaaz, RBI Governor Shaktikanta Das had said that banks could extend the loan moratorium by three, six, or even 12 months under one-time restructuring. The moratorium was initially granted to ease the hardships faced by the borrowers during the pandemic.

The RBI had initially allowed lenders to grant a loan moratorium for three months on equated monthly instalments (EMIs) falling due between March 1 and May 31, 2020. Later, it had extended this for another three months until August 31. To manage the financial stress amid the lockdown, RBI had also permitted lenders a one-time restructuring of loans without classifying these as non-performing assets.

A high proportion of debt from the real estate, airlines, hotels, and other consumer discretionary sectors had been restructured, the largest contribution had been from infrastructure, power, and construction. The restructuring quantum from the corporate sector in FY21 could range between 3 per cent and 5.8 per cent of the banking credit, amounting to Rs 3.3-6.3 trillion, India Ratings said in a report. Even stressed assets that might not slip in the near term could be restructured, as Covid-19 would have aggravated stress.

At least Rs 210,000 crore (1.9 per cent of banking credit) of non-corporate loans is likely to undergo restructuring after the announcement, which would have otherwise slipped into the non-performing asset category, India Ratings said in its report.

The finance minister had earlier urged lenders to immediately put in place a board-approved policy for resolution at the review meeting with heads of scheduled commercial banks and NBFCs through video conferencing. She had said to lenders that borrowers must be given support and Covid-19-related distress must not impact lenders’ assessment of their creditworthiness as and when the moratorium on loan repayments was lifted.

Sectors selected for resolution by the committee: