Reserve Bank of India introduced the Debt Restructuring Scheme for stressed borrowers who got impacted due to the COVID-19 economic slowdown.
The scheme enables these accounts to have a one-time restructuring. This scheme is for individuals and companies whose loans/debt have been standard but have defaulted not more than 30 days as of 1 March 2020. This scheme will not apply to the accounts which have defaulted for more than 30 days as of 1 March 2020.
For retail borrowers, the resolution plan will be invoked until December 2020 and implemented in 90 days. For Corporates, the resolution plan will be invoked until December 2020 and implemented until June 2021.
RBI has introduced five members expert committee headed by the Ex-Chairman of ICICI Bank, Mr KV Kamath. The main tasks will be to set financial parameters and lay down sector-specific parameters like leverage, liquidity, debt serviceability, etc. for the resolution plan. The list of financial parameters finalized by the expert committee will be shared with RBI which will have a final call and will notify after 30 days.
The expert committee will also be responsible for vetting the resolution plan for the accounts where the exposure is Rs 1500 and above. The banks will have to maintain the provision of 10% of the account which is under the resolution plan. However, in the absence of the Inter Creditor Agreement, the banks will have to maintain a 20% provision for the accounts under a resolution plan. This will surely stress the banks and will impact their liquidity.
The scheme will enable banks to keep check of their NPA which may arise due to the impact of COVID-19 on the economy. The agenda of RBI is to limit the NPA which may arise due to the impact of COVID-19. However, it won’t change the current level of NPA that the banks have.
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