The bankers also stated that many large companies could have credit facilities sanctioned, but that they were not used earlier and that they were probably now rushed by these unused funds to avoid restructuring. “If a large company is going through a restructuring, the credit rating may be denied. Secondly, it requires a provision of 10% for banks. It will be a huge burden. Therefore, even if a company asks for a debt overhaul, banks prefer to give additional funds rather than restructure,” said a senior bank official, explaining the likely reasons for a timid reaction. The committee was chaired by former ICICI CEO K.V. Kamath. Other members of the committee are former Chairman of the Board of Directors of the State Bank Diwakar Gupta, the current Chairman of Canara Bank TN Manoharan, consultant Ashvin Parekh and Sunil Mehta, CEO of the Indian Banks` Association. The committee was formed to examine loans of more than 1500 Us-Euro. The committee`s mandate has been extended until June 30, 2021. In order to alleviate the financial anxiety of the famelic business units and those who had come out because of the blockage of the deadly coronavirus, apex Bank of India had proposed, in the last week of March 2020, a three-month freeze or moratorium on payments of all long-term loans and advances. Although the facilities have been extended until the end of August 2020, the RBI, in the face of the continuing currency and economic crisis, has decided to allow banks to restructure the advances of budget-burdened organisations and has entrusted the technical committee with the task of making the structure of credit restructuring solemn.
There are about 307 sectors in which banks lend. The TC Kamath Committee recommended financial parameters for 26 such sectors, which banks must comply with for a debt overhaul. These include electricity, real estate, infrastructure, aeronautics, automotive, cement, etc. In this scenario, the Reserve Bank of India (RBI) announced a loan restructuring plan to provide relief to affected borrowers, who may have difficulty repaying their debts, at least in the short term. The main objective of the loan re-foundation plan is to provide a comprehensive solution to the liquidity and profitability problems faced by existing borrowers in the private credit segment, as well as in the business loan categories and MSME loan categories. The RBI recognized the need to address the deeper cash flow problems of borrowers, many of which have a good repayment history. According to the RBI`s financial stability report published in July, about 50% of individual borrowers had benefited from the moratorium as of 30 April. However, any restructuring will result in a price such as higher interest costs and may have long-term implications for the financial future. Therefore, only those who are actually affected by the COVID 19 crisis and who are struggling to repay the debt should opt for the settlement of the credit. In addition, the petition on the transfer of interest to the credit moratorium has not yet been considered by the Indian Supreme Court and has been followed up since March 2020.
A bank headed by Judge Ashok Bhushan has heard petitions calling for the moratorium on credit to be postponed and for the loss of accrued interest. In the RBI lexicon, the term “personal credit” includes gold, education, home, residential, use and car loans, credit card taxes and securities loans (excluding commercial and commercially sanctioned credits).