‘Debt restructuring to help India Inc to tide over Covid crisis’

7 August, 2020 12:00 AM printer

NEW DELHI: The Reserve Bank of India’s plan to allow one-time debt restructuring and setting up an expert committee headed by former banker K V Kamath for corporate and personal loans resolution, will provide much-needed relief to Indian companies once the moratorium on loans ends this month.

A host of Indian companies led by airlines, hotels, travel and tourism, real estate and media are expected to fall into a financial crisis, as their cash flows dried up due to the nationwide lockdown announced by the Indian government to contain the Coronavirus pandemic, report agencies.

“We want to see immediate action by August end. Debt restructuring is important if the companies need to survive and do not lay off employees,” said the CEO of an airline asking not to be quoted. RBI governor Shaktikanta Das said today that disruptions caused by Covid-19 have led to increased financial stress for all borrowers. “A large number of firms that otherwise maintain a good track record under existing promoters face the challenge of their debt burden 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. Accordingly, it has been decided to provide a window under the June 7 Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures - without change in ownership - as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions,” he said.

Ramesh Nair, CEO and Country Head (India), JLL, said that in response to the cumulative rate cut of 115 bps announced since February 2020, banks have already transmitted 70-90 bps in their home loan portfolio, being the fastest transmission. “Today’s measures will continue to play a significant role to tide over the short-term challenges faced by the corporates and will give them a breather to focus on restarting their business operations. However, one-time restructuring of loans would have given the much needed respite to the real estate sector which has been facing headwinds due to the pandemic,” Nair said.

Nair said the real estate sector too is yet to see the full swing impact of measures announced earlier. The sector saw a decline in H1 2020 in residential sales across the top seven cities, while launches remained constrained on the back of bleak economic environment and muted consumer sentiment. However, recovery in the residential market is imminent and its green shoots would first emerge in the affordable and mid segments across top cities in the country. While economic growth is expected to be under pressure, he said.