RBI’S Loan Recast Plan specified
Part of: GS Prelims and GS-III- Economy
- 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.
- 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.