‘Key financial ratios prescribed by Kamath panel intended to be floors or ceilings’
The Reserve Bank on Monday specified five financial ratios and sector-specific thresholds for resolution of COVID-19 related stressed assets in 26 sectors, including auto components, aviation, and tourism.
The circular issued by the RBI for resolution of stressed assets is based on the recommendations of the K.V. Kamath committee, which submitted its report on September 4. “The recommendations of the Committee have been broadly accepted by the Reserve Bank,” RBI said in a release.
The key financial ratios suggested by the committee are total outside liabilities/adjusted tangible networth; total debt/EBITDA; current ratio, which is current assets divided by current liabilities; debt service coverage ratio; and average debt service coverage ratio.
The 26 sectors specified by the RBI include automobiles, power, tourism, cement, chemicals, gems and jewellery, logistics, mining, manufacturing, real estate, and shipping among others.
The RBI said the ratios prescribed “are intended as floors or ceilings, as the case may be, but the resolution plans shall take into account the pre-COVID-19 operating and financial performance of the borrower and impact of COVID-19 on its operating and financial performance at the time of finalising the resolution plan, to assess the cashflows in subsequent years, while stipulating appropriate ratios in each case.”
It also said lending institutions may, at their discretion, adopt a graded approach depending on the severity of the impact on borrowers while implementing the resolution plan.