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K.V. Kamath Committee on Restructuring of Loans

  • 11 Aug 2020
  • 2 min read

Why in News

The Reserve Bank of India (RBI) has set up a committee headed by K.V. Kamath on restructuring of loans impacted by the Covid-19 pandemic.

Key Points

  • Objective: The Committee is tasked to recommend parameters for one-time restructuring of corporate loans.
    • The Committee will formulate sector-specific resolution plans for all accounts with total loan exposure of Rs.1,500 crore and above.
  • Deadline: It will submit its recommendations to RBI in 30 days.
  • Background: In the recent Monetary Policy report, RBI has allowed banks to restructure loans to reduce the rising stress on incomes and balance sheets of large corporates, Micro, Small and Medium Enterprises (MSMEs) as well as individuals.
  • Reasons: A large number of firms that otherwise maintain a good track record are facing the challenge as their debt burden is becoming disproportionate, relative to their cash flow generation abilities.
    • This can potentially impact their long-term viability and pose significant financial stability risks if it becomes widespread. It may also lead to an increase in Non-Performing Assets.
  • Eligibility: Only those borrowers will be eligible for restructuring whose accounts were classified as standard and not in default for more than 30 days with any lending institution as on 1st March, 2020.
    • All other accounts will be considered for restructuring under the Prudential Framework issued by the RBI in 2019, or the relevant instructions as applicable to specific categories of lending institutions where the prudential framework is not applicable.
    • The restructuring efforts may or may not include a moratorium on instalment repayments. RBI has left the decision of moratorium on banks, with an eye on averting such loans from slipping into non-performing assets.

Source: TH

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