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."