Loans worth Rs. 70,000 crore that were restructured last year under the Covid-19 regulatory package will be extended by the RBI’s move to grant them an additional six months until October 1, 2022 to include operational parameters such as meet the debt service ratio.
Bankers said the move is in support of stressed businesses in sectors such as tourism, real estate, hospitality and others that have been hard hit by the second wave. Along with the economic recovery in the second half of the current fiscal year, it is expected to reduce the risks of slipping, bankers said.
Dinesh Khara, chairman of the State Bank of India, said the postponement of the deadline for compliance with operating parameters for stressed companies will help companies navigate the pandemic with some level of security.
Commenting on the steps taken by the Reserve Bank of India, Governor Shaktikanta Das said he recognized the negative impact of the second wave of Covid-19 and the difficulties it caused in revitalizing businesses and complying with operating parameters. It was therefore decided to postpone the target date for reaching the established thresholds for the above four parameters to October 1, 2022. Originally, companies and companies that made use of restructuring had to meet the quotas by March 31, 2022.
The resolution plans implemented as part of the resolution framework for COVID-19-related stress (announced August 6, 2020) require compliance with sector-specific thresholds in relation to certain financial parameters. Of these parameters, four parameters for businesses are total debt to EBIDTA ratio, current ratio, debt service coverage ratio, and average debt service coverage ratio.
SS Mallikarjuna Rao, managing director and chief executive of Punjab National Bank, said the delay in meeting the financial parameters under Resolution 2.0 will address the recovery difficulties companies face in meeting operational parameters.
Anil Gupta, Vice President & Sector Head – Financial Sector Ratings, ICRA said that as companies’ results were impacted by the second wave, reaching financial parameters related to profitability in FY22 could be challenging. Icras estimates that the corporate loan restructuring carried out by the banks is valued at 700 billion rupees, he added.
Ashish Chhawchharia, Resolution Professional and Partner, Grant Thornton Bharat, the extended period will allow credit institutions to study how mass vaccination and opening up of services are affecting aggregate demand. You would also be able to assess how this would lead to personal spending, tourism and other relevant activities.
Auto, energy, tourism, real estate and hospitality are seeing positive consumer sentiment, but the year-over-year growth rate still leaves much to be desired, he added.
Facilitating the RBI in postponing the deadline for reaching financial parameters will help companies prepare for the new framework, even if the threat posed by the third wave is great. While certain aspects of the economy are booming, a number of sectors are still suffering from the after-effects of the pandemic, ie low demand, high production costs, export restrictions, global uncertainties.