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Debt recast terms set to get clarity

RBI has already permitted a one-time recast of both corporate and retail loans without getting classified as a bad asset
While the six-month loan moratorium ended on August 31, the RBI has said that under the new mechanism, banks can reschedule repayments by a maximum of two years which may include a payment moratorium.
While the six-month loan moratorium ended on August 31, the RBI has said that under the new mechanism, banks can reschedule repayments by a maximum of two years which may include a payment moratorium.
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Our Special Correspondent   |   Mumbai   |   Published 03.09.20, 02:13 AM

The KV Kamath panel report on the nitty-gritty of business loan recast is expected to be out anytime this week even as finance minister Nirmala Sitharaman will meet the top bankers of the country on Thursday to discuss restructuring.

The RBI has already permitted a one-time recast of both corporate and retail loans without getting classified as a bad asset.

The panel has been asked to decide on the financial parameters that banks must keep in mind while picking borrowers who will become eligible for the new debt recast scheme. The RBI will issue a notification — after vetting the Kamath panel report — on September 6.

The expert panel will also undertake the process validation for the plans to be implemented under this framework, without going into the commercial aspects, for all accounts with an aggregate exposure of Rs 1,500 crore and above at the time of invocation.

Sitharaman will hold a review meeting with the heads of banks and NBFCs on Thursday for a smooth and speedy implementation of the one-time debt recast for the resolution of Covid-19 related stress in bank loans. 

Banks are in the process of getting a board-approved restructuring framework in line with the RBI’s framework and eligibility defined by the central bank in its notification on August 6. 

RBI governor Shaktikanta Das had said the Kamath panel’s suggestions would only be applicable to business loans and that banks can even commence the resolution process on stressed accounts because of the pandemic without waiting for its recommendations. He had also said that the committee will decide the acceptable debt-equity ratio of a resolution.

While the six-month loan moratorium ended on August 31, the RBI has said that under the new mechanism, banks can reschedule repayments by a maximum of two years which may include a payment moratorium. They can also convert a portion of the loan into equity instruments.

The restructuring plan should be invoked before December 31, 2020 and it  must be implemented within 180 days. The lenders must also enter into an inter-creditor agreement. At least 60 per cent of them by number and 75 per cent by value should sign this agreement. 



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