KV KAMATH COMMITTEE

Subject: Economy

Context: The Reserve Bank of India (RBI) has asked borrowers to make requests for resolution rather than working out resolution plans under the KV Kamath committee’s resolution framework to tackle Covid-related stress.

Concept:

• RBI set up a committee headed by K.V. Kamath on restructuring of loans impacted by the Covid-19 pandemic.
• The Committee was tasked to recommend parameters for one-time restructuring of corporate loans.

Recommendations made by the Committee:

• Graded approach to restructuring of stressed accounts based on severity of the impact on the borrowers- Banks can classify the accounts into mild, moderate and severe as recommended by the committee.
• Five financial parameters to gauge the health of sectors facing difficulties- total outside liabilities to adjusted tangible networth, total debt to earnings before interest, taxes, depreciation, and amortization (Ebitda), debt service coverage ratio (DSCR), current ratio and average debt service coverage ratio (ADSCR).
• 26 sectors have been identified including auto, aviation, construction, hospitality, power, real estate and tourism.

Applicability of these recommendations:

• The committee was to scrutinize restructuring of loans above ₹1500 crore.
• The resolution under this framework is applicable only to those borrowers who have been impacted on account of Covid.
• Only those borrowers which were classified as standard and with arrears less than 30 days as at March 1, 2020 are eligible under the Framework.