Why in News ?

The Supreme Court to the Union government and the Reserve Bank of India (RBI) about the steps taken to implement the K V Kamath Committee report on recommendations to bail out sectors affected by the COVID-19 stress.

About K.V Kamath Committee Report

• Constituted to make recommendations on norms for the resolution of COVID-19 related stressed loans.
• The panel tabled its report on September 4 wherein it has suggested financial parameters that include aspects related to leverage, liquidity and debt serviceability.
• KV Kamath Committee has listed FMCG, consumer durables and corporate retail outlets among 26 sectors that require financial restructuring in the aftermath of the COVID crisis.
  • Within the FMCG space, the supply chain was affected due to the lockdown, impacting sales while consumer durables and retail outlets of clothing and apparel were shut as it was considered as non-essential.
• It has recommended five financial parameters or ratios with sector-specific thresholds that lending institutions can factor in as part of a graded approach to restructuring or finalising a resolution plan for a borrower.
  • The total outstanding liability to adjusted networth
  • Total debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
  • Debt service coverage ratio (DSCR
  • Average DSCR
  • Current ratio.
• The panel has proposed elaborate calculation criteria based on which the RBI will prepare the final guidelines.
• The sector-specific parameters may be considered as guidance for the preparation of a resolution plan for a borrower in the specified sector.
• The resolution plan may be prepared based on the pre-COVID-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance in Q1 and Q2FY21, to assess the cash-flows for FY21/FY22 and subsequent years.

Source : The Hindu

Topic

GS III : Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Current Affairs Compilation : 6 October 2020