Drop KV Kamath as head of loan restructuring panel, Bank Employees’ Association urges Centre

By: |
August 11, 2020 6:30 AM

While a restructuring framework has been among the prime demands of the banking sector and a monitoring/oversight committee for it was expected, the committee being empowered to set the terms of the recast is being viewed as a novelty.

The expert committee for debt recast has been envisaged as part of the central bank’s resolution framework for Covid 19-related stress.

The All India Bank Employees’ Association (AIBEA) has written to the Reserve Bank of India (RBI) seeking a review of its decision to appoint former ICICI Bank chief KV Kamath as the head of the expert committee on debt restructuring. The association claimed that Kamath was not fit for the role, citing media reports that he was named in the first information report (FIR) filed by investigative agencies in the Videocon case.

“As per media reports, in the FIR filed by the CBI (Central Bureau of Investigation), in addition to the name of Ms. Chanda Kochar, the name of Shri K V Kamath also appears. It is reported that besides being the former CEO (chief executive officer) and non executive chairman of ICICI Bank, he was also a member of the Committee that approved the loan which have now become questionable and are under investigation,” AIBEA said in the letter to the regulator.
“Hence we strongly feel that at this stage, making such a person as Chairman of this Expert Committee is avoidable and needs to be reviewed.”

The FIR dated January 22, 2019 in the Videocon case does not mention Kamath among the accused, though it does name “other unknown private persons” and “unknown public servants”. Kamath retired from executive responsibilities at ICICI Bank in 2009. His last stint was with the New Development Bank of BRICS countries, which ended in May this year.

The AIBEA letter further mentions that in 1999, the Confederation of Indian Industry had appointed a task force on non performing assets (NPAs) in banks headed by Kamath. “This Committee recommended closure of Indian Bank and privatisation of Banks like SBI (State Bank of India) and Bank of Baroda. AIBEA questioned the Committee and its recommendations as one of the member of that Committee himself was a bank loan defaulter,” the letter said, adding that eventually those recommendations were shelved.

The expert committee for debt recast has been envisaged as part of the central bank’s resolution framework for Covid 19-related stress. It has been tasked with formulating the financial parameters on the basis of which restructuring will be implemented in stressed accounts. It will also be empowered to carry out a process validation of all restructuring exercises in accounts with an exposure of Rs 1,500 crore or more. The other members of the committee are Diwakar Gupta, TN Manoharan, Ashvin Parekh and the chief executive of the Indian Banks’ Association — a position currently held by Sunil Mehta.

While a restructuring framework has been among the prime demands of the banking sector and a monitoring/oversight committee for it was expected, the committee being empowered to set the terms of the recast is being viewed as a novelty. This is clearly a move towards greater stringency, considering past experiences of restructuring.

In a note dated August 6, Emkay Global Financial Services wrote, “For corporate loans, sector-wise restructuring will be allowed after recommendations from expert committee led by Mr K V Kamath, instead of blanket restructuring allowed post GFC, which led to high restructuring (4% in FY10/6% in FY15) and NPA formation at a later stage.” In other words, the presence of the committee, banks will be forced to exercise far greater caution than they have in past episodes of debt recast.

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