Recast loans worth Rs 70,000 crore get extra time to meet norms

Bankers said this move comes as a support to stressed firms from sectors like tourism, real estate, hospitality and others hit badly by second wave

Loans worth Rs 70,000 crore restructured under the Covid-19 regulatory package last year will get a lease of life from RBI's move to grant them an extra six months, till October 1, 2022, to meet operational parameters like Debt Service Ratio.

Bankers said this move comes as a support to stressed firms from sectors like tourism, real estate, hospitality and other hit badly by the second wave. It is expected to reduce risks of slippage in tandem with economic recovery in the second half of the current financial year, bankers said.

Dinesh Khara, chairman, State Bank of India said the deferral of deadline for meeting the operational parameters for stressed entities will help corporates navigate through the pandemic with a degree of certainty.

Dwelling on Reserve Bank of India's steps, its governor Shaktikanta Das said it recognises the adverse impact of the second wave of Covid-19 and the resultant difficulties on revival of businesses and in meeting the operational parameters. Hence, it has been decided to defer the target date for meeting the specified thresholds in respect of the above four parameters to October 1, 2022. Originally, companies and firms who availed restructuring were required to meet ratios by March 31, 2022.

The resolution plans implemented under the Resolution Framework for Covid-19 related stress (announced on August 6, 2020) require sector specific thresholds to be met in respect of certain financial parameters. Of these parameters, four parameters for entities are total debt to EBIDTA ratio, current ratio, debt service coverage ratio and average debt service coverage ratio.

S S Mallikarjuna Rao, managing director and chief executive, Punjab National Bank said deferral for achievement of financial parameters under Resolution framework 2.0 will address the revival difficulties faced by the businesses in meeting the operational parameters.

Anil Gupta, Vice President & Sector Head - Financial Sector Ratings, ICRA said as the earnings of the companies have been impacted due to the second wave, achieving financial parameters related to profitability could be a challenge in FY22. As per Icra’s estimates, the corporate loan restructuring implemented by banks is estimated to be Rs 700 billion, he added.

Ashish Chhawchharia, Resolution Professional and Partner, Grant Thornton Bharat, the extended time period will allow lending institutions to study how mass coverage of vaccinations and opening of services are to affect aggregate demand-supply. They would also be in position to assess how it would lead to private spending, tourism and other activities of relevance.

Auto, power, tourism, real estate, and hospitality are seeing positive consumer sentiments, but the Yera-on-Year growth rate still leaves much to be desired, he added.

RBI's relief on deferral of deadline for achievement of financial parameters will help companies with more time to prepare for the new framework, even as the threat of the third wave looms large. While certain aspects of the economy are witnessing an uptick, quite a few sectors are still reeling from the after effects of the pandemic, i.e. low demand, high cost of inputs, export limitations, global uncertainties.