RBI’S Loan Recast Plan specified

RBI’S Loan Recast Plan specified

Part of: GS Prelims and GS-III- Economy

 In news

• The RBI 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.

Key takeaways

• The circular issued for resolution of the stressed assets is based on the recommendations of the K.V. Kamath Committee.
• The 26 sectors include automobiles, power, tourism, cement, chemicals, gems and jewellery, logistics, mining, manufacturing, real estate, and shipping among others.
• Five financial metrics need to be taken into account while deciding on a recast plan: (a) total outstanding liabilities/ adjusted tangible net worth, (b) total debt/Ebitda, (c) current ratio, (d) debt service coverage ratio, and (e) average debt service coverage ratio.
• For each of these parameters, RBI has prescribed either a floor or a ceiling.
• The committee has set 180 days to implement the plan and make an inter creditor agreement (ICA) mandatory. 
• The tenure of a loan may be extended by a maximum of two years, with or without a moratorium.
• The resolution process shall be treated as invoked once lenders representing 75% by value and 60% by number agree to invoke the same.