What changed
RBI broadly accepted the K.V. Kamath Expert Committee's recommendations on financial parameters for COVID-19 resolution plans. Lending institutions must now mandatorily consider TOL/ATNW, Total Debt/EBITDA, Current Ratio, DSCR, and ADSCR with sector-specific thresholds. For sectors without specified thresholds, banks must internally assess TOL/ATNW and Total Debt/EBITDA, while current ratio and DSCR must be at least 1.0 and ADSCR at least 1.2.
What it means for you
Banks and lenders have a standardized framework for restructuring eligible borrowers under Part B, reducing discretion and ensuring consistency. The mandatory ratios and thresholds provide clear benchmarks, but lenders can still use additional parameters. The graded approach based on pandemic impact severity (mild, moderate, severe) allows flexibility in implementation.
What you must do
- Incorporate the five mandatory ratios (TOL/ATNW, Total Debt/EBITDA, Current Ratio, DSCR, ADSCR) into all Part B resolution plans.
- Apply sector-specific thresholds from the Annex; for unspecified sectors, internally assess TOL/ATNW and Total Debt/EBITDA.
- Ensure current ratio and DSCR are at least 1.0, and ADSCR at least 1.2 in all resolution plans.
- Consider pre-COVID performance and COVID impact on cash flows when setting ratios, and adopt a graded approach based on severity of borrower impact.
Who it affects
All commercial banks including SFBs, LABs, RRBs, Primary (Urban) Co-operative Banks, State Co-operative Banks, DCCBs, All-India Financial Institutions, NBFCs including HFCs
What if a sector is not listed in the Annex with specific thresholds?
For such sectors, lending institutions must make their own internal assessments for TOL/ATNW and Total Debt/EBITDA. However, current ratio and DSCR must still be 1.0 or above, and ADSCR 1.2 or above. For sectors with specified thresholds, the Annex values apply.