Lenders gear up for due diligence ahead of loan recast

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As a part of the loan recasting, program lenders are preparing for a detailed study of cash flows and the viability of businesses. Reserve Bank of India has appointed a Committee headed by K.V Kamath to provide sector-specific recommendations for the loan recast program. They have found adversely affected industries and made some recommendations. So the study will be conducted based on the findings.

K.V Kamath committee has identified the most stressed industries due to the pandemic including aviation, realty, automobiles, infrastructure, and power. The committee suggested separate restructuring rules for the top  6 stressed sectors. It has assessed 307 sectors and out of that recommended solutions for 29 sectors. The recommendations will aim to ensure that businesses overcome the current difficulties and grow as the economy goes back to normal. The committee has included suggestions from at least 20 representatives of different lenders and it should be included in the final report of the committee. Stressed sectors could either benefit from easier repayment terms or a much deeper restructuring, based on the analysis of their sustainable and unsustainable debt.

RBI is preparing the recast plan based on the committee’s suggestions. The recast plan should be based on the five financial metrics such as total outstanding liabilities/ adjusted tangible net worth, total debt/Ebitda, current ratio, debt service coverage ratio, and average debt service coverage ratio. This restructuring scheme will help all the stressed corporate borrowers. The pandemic affected the revenues. So it may be a problem for the borrowers to repay the loan in time. So the loan recasting plan would be a stress relief for the borrowers.

Recently, the supreme court has ordered that no account should be declared as non-performing after August 31 till further orders. The next hearing in the case is scheduled for September 10. It has an impact on the loan recasting plan. So it may delay the implementation of the loan recasting plan. Any way Nirmala Sitharaman, Finance minister of India asked separately banks to create a loan recasting plan to help the borrowers.

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