The disruptions  caused  by  COVID-19   have   led  to  heightened financial stress for borrowers across the board, says RBI

MUMBAI, Aug 6, 2020: The Reserve Bank is constituting an Expert Committee under K.V. Kamath to go into the financial parameters,  along  with  the  sector  specific  benchmark ranges, to be factored into resolution plans. The Expert Committee shall also undertake a process validation of resolution plans for borrowal accounts above a specified threshold, RBI Governor Shaktikanta Das said.

Das noted that the disruptions  caused  by  COVID-19   have   led  to  heightened financial stress for borrowers across the board. A large number of firms that otherwise maintain a good track record under existing promoters face the challenge of their debt burden becoming disproportionate, relative to their cash flow generation abilities. This can potentially impact their long-term viability  and  pose  significant  financial  stability  risks  if  it  becomes  wide- spread. Accordingly, it has been decided to provide a window under the June 7th Prudential Framework to enable lenders to implement a resolution plan  in  respect  of  eligible  corporate  exposures  -  without  change  in ownership - as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions.

In  the  light  of  past  experience  with  regard  to  use  of  regulatory forbearance,  necessary  safeguards  have  been  incorporated,  including prudent entry norms, clearly defined boundary conditions, specific binding

covenants,    independent    validation    and    strict    post-implementation performance monitoring. The underlying theme of this resolution window is preservation of the soundness of the Indian banking sector, he explained.

The central bank announced that an additional special liquidity facility of Rs 10,000 crore will be provided at the policy repo rate consisting of Rs 5,000 crore to the National Housing

Bank  (NHB)  to  shield  the  housing  sector  from  liquidity  disruptions  and augment  the  flow  of  finance  to  the  sector  through  housing  finance companies (HFCs) and Rs 5,000 crore to the National Bank for Agriculture and Rural Development (NABARD) to ameliorate the stress being faced by smaller   non-bank   finance   companies    (NBFCs)   and   micro-finance institutions in obtaining access to liquidity.

RBI said a  restructuring  framework  for  MSMEs  that  were  in  default  but ‘standard’  as  on  January  1,  2020  is  already  in  place. 

The  scheme  has provided relief to a large number of MSMEs. With COVID-19 continuing to disrupt normal functioning and cash flows, the stress in the MSME sector has got accentuated, warranting further support. Accordingly, it has been decided   that   stressed   MSME   borrowers   will   be   made   eligible   for restructuring  their  debt  under  the  existing  framework,  provided  their accounts  with  the  concerned  lender  were  classified  as  standard  as  on March 1, 2020. This restructuring will have to be implemented by March 31, 2021.

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory, said: "The RBI was expected to announce a status quo on rates after multiple and significant repo rate reductions over the past few months. The move to offer a further Rs.10,000 crores to NABARD & NHB will help bring liquidity to the sector. The 90% lending against gold will make it easier for the middle class to avail liquidity. It is important now for the RBI to further reduce the reverse repo to help banks lend further and let go of the cautious approach that has been adopted currently. Importantly, the move to form an expert committee to examine the one-time restructuring of loans will significantly help borrowers mitigate the impact of COVID-19 and the subsequent lockdowns," Agarwal said,

Bhushan Nemlekar Director, Sumit Woods Limited, said: "The decision to allow one-time restructuring of loans by RBI is a great news for the real estate industry. This will certainly help a lot of developers to complete their projects on time and a lot of buyers to get their homes soon."