COVID -19 Pandemic: Pressure mounts from different sectors on GoI and RBI on OTR of all loans

Lalit Shastri

The One-Time Restructuring, (OTR), was intended to provide relief to industry and help overcome the economic crisis due to COVID-19. To provide relief, it is imperative to first understand the concerns, as all industries have their own nuances, which has not been done by the Kamath Committee. This Committee only met with representatives of 3 industries, but prescribed remedies for 26 industries, without taking any representation from them in effect. Through this, it is clear that the entire exercise has been a mere eyewash and seemingly ineffective, which was not the intention.

The gold industry is a subset of the gems and jewellery sector. While the gems and jewellery industry has been included in the list of industries entitled for the OTR, it seems the gold industry has been excluded from the same, as the ratios prescribed are bizarre and unrealistic.

Prithviraj Kothari, National President, India Bullion and Jwellers Association (IBJA)

When the nation is at war and all are fighting a huge battle to contain the Corona Virus; when the number of COVID+ cases are surging each day after a second wave of COVID-19 has swept the entire country; when the States and Union Territories are being forced to impose lockdowns, go for containment zones and restricted attendance in office; when hospitals are gasping for oxygen and essential medicines; when casualty figures are rising; when we are struggling to vaccinate the population across all categories of people, it beats imagination that the Reserve Bank of India and the Government of India have chosen to go ahead with the One Time Restricturing (OTR) of loan ratios etc. – a process that has been put in place without accepting representations from all the different sectors and providing them the expected relief.

In order to help the industry and business during the hour of crisis, the RBI had announced the formation of the Kamath Committee that formulated the norms to permit One Time Restructuring, (OTR) of all loans.

While the OTR was announced for a total of 26 sectors, the Kamath Committee only accepted representation from 3 of the sectors. Meaning thereby that remedy has been offered to 23 sectors without bothering to diagnose their ailment. Investigation regarding steps taken by the Kamath Committee to arrive at what should have been a fair and objective assessment of problems being faced by all different sectors, has exposed the sad state of affairs. In fact only 3 sectors had made representation to this Committee (as per a list of the meetings printed on the last page of the Kamath Committee Report). Unfortunately RBI has even refused to share any information about the meetings of the Kamath Committee with different sectors in response to an RTI application (copy of RBI reply is available with Newsroom24x7).

According to an unimpeachable source, in a virtual meeting with the RBI Governor, “an RBI official mentioned that this may be so due to a lack of time, which is absolutely incorrect. The meetings held by the Expert, (Kamath), Committee were over a period of 25-30 days and the meetings were initially held with gaps of 7 days, clearly showing no sense of urgency. Mr. Sunil Mehta, CEO-IBA has co-Chaired this committee and being an ex-banker, did not apply common sense to reach out to the various industries to know their problem first-hand. Sadly, it is industry that shall suffer for this oversight and irresponsible actions of these two stalwarts.”

After the first wave of COVID-19 had hit India early 2020, the RBI had announced in August 2020, a special Resolution Framework for COVID-19-related Stress. The RBI and Government had taken this step as COVID related stress had the potential to impact the long-term viability of many firms that were having a good track record under the existing promoters,as their debt burden was becoming disproportionate to their cash flow generation abilities.

RBI decided to provide a window under the Prudential Framework to enable the lenders to implement a resolution plan in respect of eligible corporate exposures without change in ownership, and personal loans, while classifying such exposures as Standard, subject to specified conditions.

Confederation of Indian Industry has demanded that the time of 180 days from the date of invocation of the OTR needs to be increased by a minimum of 90 days, if not longer, as COVID has slowed down the OTR process. Staff of borrowers are falling sick, lockdowns are not permitting valuers to visit premises, bank officials are falling sick; all of which has led to a slowdown in the working efficiencies.

The K V Kamath Expert Committee submitted the report on Resolution Framework for COVID-19 related Stress on 4 September. It has identified 26 stressed sectors with eligibility criteria related to specific financial parameters. The sectors identified for severe COVID-19 related stress and listed as eligible for the Resolution Framework for COVID-19 related stress are – Power; Construction; Iron & Steel Manufacturing; Roads; Real Estate; Trading-Wholesale; Textiles; Chemicals; Consumer Durables/FMCG; Non-ferrous Metals; Pharmaceuticals; Manufacturing; Logistics; Gems & Jewellery; Cement; Auto Components; Hotel, Restaurants, Tourism; Mining; Plastic Products Manufacturing; Automobile Manufacturing; Auto Dealership; Aviation; Sugar; Port & Port services; Shipping; Building Materials; Corporate Retail Outlets.

CII members have pointed out that some issues had been underscored by them before implementation of OTR. The Kamath committee’s recommendations submitted on 4th September state that in addition to other financial factors the defined sector specific parameters may be considered, however, RBI’s final recommendation announcement on 7 September 2020 has made it a mandatory condition that the sector-specific thresholds (ceilings or floors, as the case may be) for each of key ratios should be considered by the lending institutions.

Additionally, as per the recommendations of the Kamath Committee, the threshold TOL/Adjusted TNW and Debt/ EBIDTA ratios should be met by FY 2023 and the balance three threshold ratios should be met for each year of the projections starting from FY 2022. This has also been modified by RBI stating that all the defined 5 key ratios shall have to be maintained as per the resolution plan by March 31, 2022 as against end March 2023 as recommended by the Kamath Committee.

CII has pointed out that the timelines modified by RBI directly conflict with RBI’s September 6 Circular wherein all the ratios have to be complied with by end March 2022. Therefore, and in view of the prevailing situation, CII has asked the RBI and Government of India to extend the date of invocation to 30 June 2021 (in line with ECLGS 3.0). Also, the time period for implementation of RP be more than the allocated time of 180 days from the date of invocation of the OTR.

CLICK here for points raised with the Reserve Bank of India by the India Bullion and Jewellers Association Limited

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