File photo of veteran banker K.V. Kamath (left) with RBI governor Shaktikanta Das | Twitter: Indian Embassy in the US
File photo of veteran banker K.V. Kamath (left) with RBI governor Shaktikanta Das | Twitter: Indian Embassy in the US
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Mumbai: The five-member K.V. Kamath committee, which was formed last week to formulate and validate loan restructuring, has sought clarification from the Reserve Bank of India (RBI) on when it is expected to submit its recommendations, and if it can start deliberating with members even before they join the panel formally.

This is because the central bank has not formally indicated a deadline by when the panel, headed by the veteran banker and former ICICI chief K.V. Kamath, would have to submit its views. While announcing the constitution of the panel, the RBI had said, “The committee shall submit its recommendations on the financial parameters to the Reserve Bank which, in turn, shall notify the same along with modifications, if any, in 30 days.” It did not specify the deadline for the panel.

The central bank has also said that appointment of one of the committee members, Diwakar Gupta — a former managing director of State Bank of India — is effective from 1 September, which is after the completion of his term as vice-president, Asian Development Bank. 

The appointment of another member, T.N. Manoharan, is effective from 14 August, after the completion of his term as the chairman of Canara Bank.

Banking industry sources said RBI has informally indicated that the committee needs to submit its suggestions within a month of the announcement of the panel, which is a departure from past practices. As a convention, the deadline for any committee starts from the date of when it conducts its first meeting. 

“If one member is joining almost after a month after the announcement of the committee, then meeting that deadline would be difficult,” a source told ThePrint. 

Sources also said the Kamath panel will take at least a month to prepare the contours of the debt recast scheme as the scope of the work is fairly large. 

The Kamath committee has been asked for recommendations on the required financial parameters to be factored in the resolution plans, with sector specific benchmark ranges for such parameters, for which the panel would need to seek data from banks on every sector before it can form its views. 

According to RBI classifications, there are more than 300 sectors to which lenders are allowed to lend.

An email query sent to the RBI on the issue remained unanswered. This report will be updated when a response is received.  

Also read: 1 hotel, 2 backup offices, 200 isolated staff — how RBI ensured Covid didn’t disrupt banking

Time running out, say banks

After the initial euphoria on the announcement of the debt recast plan, banks and borrowers have realised that they are running against time.  

Banks are concerned that all these issues could lead to delay in the resolution process. “If the Kamath panel starts work in September, then it can submit its suggestions by the end of the month and then RBI will take another month to firm up the final guidelines. So, the actual resolution process can only start in December,” said a senior banker from a public sector bank.  

The deadline for banks to invoke the resolution plan — which is the deadline for agreeing to restructure a particular loan, after necessary due diligence — is 31 December, according to RBI directives. The plan must be implemented in 90 days for retail customers, and in 180 days for firms.

Banks have said crucial time will be lost by the time the debt recast plan is invoked, as many firms, particularly the smaller ones, may not remain viable. 

“Banks have to go to their boards for the approval of the evaluation process and the approval criteria. That process itself could take one month,” said a senior official from a large public sector bank, indicating that they can only seek board approval after the final RBI norms. “We can only agree to recast a debt after they know the final contours of the norms.” 

Another issue that lenders point out is that many firms and individuals will not be able to avail the benefits of a debt recast. This is because the RBI has said loans, which are overdue not more than 30 days, are eligible for debt recast. When the loan moratorium was announced, all accounts that are standard, irrespective of their dues, were included. 

“It would have been logical and helpful for all corporate and non-corporate customers to permit restructuring, which was standard as of March, the same criteria which was taken for the purpose of moratorium,” said the chief executive of a non-banking finance company.

As the Covid-19 pandemic has taken a toll on businesses activities as well as household income, with many of them not in a position to service their debt, the central bank announced a one-time debt restructuring of loans last week. Restructuring means a longer payment schedule as well as moratorium on interest and principal, which banks may now allow. 

RBI has allowed banks to set aside lower capital — known as provision — as compared to what is otherwise required for debt restructuring. 

Also read: RBI turns cautious amid inflation, keeps interest rate unchanged at 4%


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