RBI says lenders have enough leeway, sector-specific freedom

The Reserve Bank of India (RBI) has stressed that banks have sufficient leeway to accommodate the impact of Covid19 while stipulating specific ratios for determining eligibility of loan resolution under the special window notified by it on September 7. Also, the lenders have been given the freedom to accommodate sector-specific characteristics.

In an affidavit filed in the Supreme Court, the RBI said while the scheme relies on five key ratios prescribed by the KV Kamath Committee in regard to debt restructuring for 26 specified sectors, lenders could make their own internal assessments regarding the value of these ratios for other sectors. Also, the RBI said, freedom is being given to accord a different treatment for sectors namely aviation, automobile manufacturing, roads and whole-sale trading.

Also, “the resolution plans are required to take into account the pre-Covid-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance at the time of finalising the resolution plan, to assess the cash flows in subsequent years, while stipulating appropriate ratios in each case, the RBI noted.

In another affidavit, the central bank stated that any waiver of interest on interest during the six-month loan moratorium will entail ‘significant economic costs’ to banks and dent their financials. The banking regulator also said it has only provided an enabling mechanism for the lenders to permit the moratorium, without the same being treated as restructuring of the terms of the loan contract. The lenders are best placed to assess the requirements of its customers, the RBI said, toeing the line taken by the government in this regard.

The Supreme Court earlier this week asked the Centre and the RBI to place on record the actions taken on K V Kamath committee’s report on debt restructuring and also urged the duo to consider the relevant “issues raised by the real estate associations and power producers”.

The apex court observed that the Centre’s offer to waive “interest on interest” on loans up to Rs 2 crore for specified individual and MSME borrowers was “not satisfactory.” The affidavit “fails to deal with several issues”, it said.

The KV Kamath panel was set up by the central bank in view of the stress inflicted by Covid-19 on various sectors to recommend eligibility parameters for the restructuring of loans