Context:

Reserve Bank of India released the K V Kamath-led Committee report, which had recommended financial parameters to be factored in the resolutions under the ‘Resolution Framework for Covid19-related Stress’ along with sector-specific benchmark ranges for such parameters.

Stressed Assets

• Stressed assets = NPAs + Restructured loans + Written off assets.
  • Non-Performing Assets: A loan whose interest and/or installment of principal have remained ‘overdue ‘ (not paid) for a period of 90 days is considered as NPA.
  • Restructured asset: Restructured assets or loans are that assets which got an extended repayment period, reduced interest rate, converting a part of the loan into equity, providing additional financing, or some combination of these measures.
  • Written off assets: Written off assets are those the bank or lender doesn’t count the money borrower owes to it.

 

Recommendations of the K. V. Kamath Committee

• The K.V. Kamath committee recommended a graded approach to the restructuring stressed accounts based on the severity of the impact on the borrowers.
• The committee has allowed banks to classify the accounts into mild, moderate, and severe as recommended by the committee.
• In line with the mandate given by the RBI, the Kamath committee has identified four financial parameters including.
• Total outside liabilities to adjusted tangible net worth.
• Total debt to EBITDA
• Debt service coverage ratio (DSCR)
• Average debt service coverage ratio (ADSCR).

 

About K.V. Kamath Committee

• In August 2020, RBI had formed a five-member committee under the chairmanship of former ICICI Bank CEO KV Kamath to make recommendations on the financial parameters to be considered for the one-time restructuring of loans impacted by the Covid 19 pandemic.
• The Indian Banks’ Association (IBA) functioned as the secretariat to the commie.

 

Indian Banks’ Association (IBA)

• Indian Banks’ Association (IBA) is an association of Indian banks and financial institutions.
• It was formed on 26 September 1946 in Mumbai as a representative body of management of banking operating in India.