72 per cent of the banking sector debt worth Rs 37.72 lakh crore has slipped into stress.
The coronavirus pandemic has pushed loans worth Rs 15.52 lakh crore under stress due to the major disruptions in businesses amid the lockdown. Working on the loan restructuring guidelines, the KV Kamath committee said that the banking debt worth Rs 23.71 lakh crore, or 45 per cent of banking sector debt, was already under stress before the coronavirus hit the economy. With further disruptions, 72 per cent of the banking sector debt worth Rs 37.72 lakh crore slipped into stress. Sectors such as retail trade, wholesale trade, roads, and textiles are believed to bear the maximum brunt of the pandemic, while NBFCs, power, steel, real estate, and construction sectors were already reeling from stress in the pre-pandemic period.
Out of Rs 15.5 lakh crore loans that went under stress, Rs 5.42 lakh crore are from retail trade and wholesale trade, and Rs 1.94 lakh crore is from the roads sector. Consequently, to provide the sector-specific push, the committee identified 26 sectors that have been severely affected and it has 5 key financial parameters with acceptable range to be eligible for resolution.
“This should help in reducing the timeline for resolution of the stressed assets. The banks and industry would welcome this as the committee’s recommendation would mitigate the risk of scrutiny of their assessments in case of non-performance of the restructured assets,” said Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP. The resolution window would offer the banks an opportunity to clean up the books of Covid induced stress and also give a breather to affected industries, he added.
Last week, Finance Minister Nirmala Sitharaman had asked banks and NBFCs to roll out loan restructuring scheme for coronavirus related stress by September 15 and provide adequate support to the borrowers following the lifting of moratorium on repayment of debts. Now, with the new report and recommendations of the Kamath Committee, the banks are likely to be in a better position to go for loan restructuring.
“This is expected to bring in the required level of uniformity and rigour in assessing the impact of coronavirus on companies and preparing resolution plans,” said L Viswanathan, Partner, Cyril Amarchand Mangaldas. Such parameters will provide flexibility to the borrower as well as cater to the need to have a sustainable business in the near future where the lending institutions are also free to stipulate other parameters in addition to the mandatory ones, he added.