By Ankur Mishra
Even as the Reserve Bank of India (RBI) has permitted lenders to classify Covid-affected borrowers into three categories — mild, moderate and severe — for restructuring, banks are not in favour of a uniform process for all the categories. State Bank of India (SBI) MD CS Setty said the process of restructuring for the three categories of borrowers preferably should be different. “If someone needs mild restructuring, like extension of moratorium for another six months, it may be exempted from detailed viability study, rating agency approval etc.,” he said, adding that it would help expediting the resolution process.
Banks also are concerned about hurdles in the signing of inter-creditor agreements (ICAs) for resolution of accounts. A senior bank official told FE that it would be a challenge to build consensus among lenders in a short span. Banks need to invoke the resolution plan by December, and an inter-creditor pact needs to be signed for all accounts, where there is more than one lender. Any lender who does not sign ICA will have to make 20% extra capital provisioning.
Soumitro Majumdar, partner, J Sagar Associates, said regulatory clarity on ICA execution being mandatory, would nip a lot of inter–creditor disputes in the bud, and compel focused efforts towards timely resolution plan implementation.
RBI on Monday had specified five key ratios across 26 sectors, which lenders must follow while restructuring of accounts impacted by Covid-19. The recommendations given by the KV Kamath Committee has specified five metrics that need to be taken into account while deciding on a recast plan. These include total outstanding liabilities /adjusted tangible net worth, total debt/ebitda, current ratio, debt service coverage ratio, and average debt service coverage ratio.
Some experts, however, believe that sector-wise differentiation may cause more harm than good. Sonam Chandwani, managing partner, KSK Legal said, “A differentiated graded approach may lead to implementation woes for financial institutions and deprive the residual sectors, hit by the pandemic, from availing a liquidity shot thereby putting their survival at stake.” The circular will be difficult to implement on paper and may even leave scope for manipulation, she added.