MUMBAI: A committee set up by the Reserve Bank of India (RBI) to make recommendations on restructuring loans for the Indian banking sector has submitted its report and it has been broadly accepted, the Reserve Bank of India said.
The committee has recommended five financial ratios such as total outstanding liabilities, total debt and debt service coverage ratio for 26 sectors which could be factored in by lenders while finalizing resolution plans for borrowers.
Apart from these, banks can also consider other financial parameters. Lenders have been directed to consider the pre-COVID-19 financial performance of the company for considering the resolution plan.
These sectors include aviation, hospitality, real estate which are some of the most stressed sectors in the economy due to the impact of the pandemic.
The RBI said it had broadly accepted the recommendations of the expert committee.
The RBI had formed a committee under K.V. Kamath, the former head of the New Development Bank, set up by the BRICS to come up with guidelines for the resolution framework.
Lenders will need to make an additional 10% provisioning for the loan accounts that are being restructured.
This comes at a time when the bad loans in the Indian banking system can rise up to 15% in the worst-case scenario, the RBI had warned earlier. Gross Non-performing assets in March were at 8.5% of the total loans.
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