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Norms for resolution of COVID-19 related stressed assets
Why is it in news?
- RBI has specified five financial ratios and sector-specific thresholds for resolution of COVID-19 related stressed assets in 26 sectors.
- The circular issued by the RBI for resolution of stressed assets is based on the recommendations of the K.V. Kamath committee.
Details:
- The key financial ratios suggested by the committee are:
(1) Total outside liabilities/adjusted tangible networth.
(2) Total debt/EBITDA.
(3) Current ratio, which is current assets divided by current liabilities.
(4) Debt service coverage ratio.
(5) Average debt service coverage ratio.
Process:
- The ratios prescribed are intended as floors or ceilings, as the case may be, but the resolution plans shall take into account the pre-COVID-19 operating and financial performance of the borrower.
- It will also consider the impact of COVID-19 on its operating and financial performance at the time of finalising the resolution plan.
Specified sectors:
- The 26 sectors specified by the RBI include automobiles, power, tourism, cement, chemicals, gems and jewellery, logistics, mining, manufacturing, real estate, and shipping among others.