oppn parties Banks Must Move Fast To Provide Relief

News Snippets

  • Kapil Sibal leaves Congress, fills nomination for Rajya Sabha with SPs backing
  • RBI bans 5 NBFCs as it cracks down on e-lending platforms
  • Hindustan Motors to tie-up with Peugeot to bring out a redesigned version of the iconic Ambassador
  • GST Council to defer rate rejig due to inflation
  • Centre to sell 29.5% in Hindustan Zinc at an expected price of Rs 38000cr
  • Stocks remain negative on Wednesday: Sensex loses 303 points to 53749 and Nifty 99 to 16025
  • IPL: RCB beat LSG by 14 runs and end their dream run. Rajat Patidar scores a brilliant 112. RCB will take on RR to decide who goes through to the finals
  • Delhi Additional district judge Nikhil Chopra says there is no legal right for people seeking to worship deity inside Qutab Minar, says it survived 800 years without worship so "let it survive like that"
  • Punjab chief minister Bhagwant Mann sacks state health minister Vijay Singla over corruption charges. Singla was later arrested by the ACB
  • Protestors burn the house of Andhra minister P Viswaroop and MLA Satish Kumar over renaming of Konaseema district as B R Amberdkar Konaseema
  • Gyanvapi: Varanasi district judge decides to first hear the 'maintainability' plea filed by mosque management
  • Delhivery and Venus Pipes shares list at premium of 10% and 8.7% respectively even when market sentiment was down
  • In a bid to cool edible oil prices, Centre allows duty-free imports of 20 lakh tonnes each of crude sunflower oil and crude palm oil per annum this year and next
  • Centre caps sugar exports to ensure availability of stocks in the domestic markets to cool prices
  • Stock markets get the jitters as RBI signals rate hike and government moves in to control inflation: Sensex tumbles by 236 points to 54052 and Nifty goes down by 89 points to 16125
Yasin Malik of JKLF gets two life terms in terror funding case /////// Kashmir TV artist killed and her nephew injured in a terror attack in Hushroo in Budgam district
oppn parties
Banks Must Move Fast To Provide Relief

By Ashwini Agarwal
First publised on 2020-09-09 15:27:18

Restructuring of loans is not always successful because banks either cannot or do not properly identify companies that would weather the storm and come out stronger if they are provided relief at times of stress. The problem becomes extreme when a situation like the pandemic throws the whole economy out of gear. Right now, the situation in India is precarious because hundreds of companies were already stressed due to the downturn in the economy before the pandemic struck. In this situation, the Kamath committee report on restructuring of corporate loans provides the banks a ready reckoner to identify eligible companies by laying down norms, identifying 26 sectors that need help immediately and providing a framework for the banks to follow in providing relief. But the report shows is likely to help banks more than the stressed companies.

One says this because the report lays down conditions that will first weed out companies that were already stressed before the pandemic. While this is good in one way, it overlooks the fact that these companies did not get a chance for revival due to the pandemic. Hence, a sector-wise mechanism should have been worked out to identify stressed companies that have a chance of revival, however slim. Leaving them to die a slow death is not wise. Then, by keeping the threshold too high, the committee has, perforce, excluded several companies, unfortunately in sectors that are severely stressed, mainly due to the lockdown, such as aviation and travel and tourism. Further, the indicators prescribed, like debt and EBITDA will make it impossible for companies with high debt to take advantage of the restructuring.

Another factor which needs to be kept in mind is that since the banks will not immediately restructure the loans (given the speed at which the banking sector works, it might take anywhere between three to six months for the modalities to be worked out after extensive one-to-one negotiations and submission of box loads of documents), the companies must be provided a gestation period - a further period of moratorium - before they start making the payments. The RBI must instruct the banks not to brand any such loan as NPA till a final decision is taken of the restructuring. The government must also examine the possibility of extending support to stressed companies through equity funding as the companies will not have to service that part and the government might make a profit by selling the shares at a premium once the economy revives and the companies start doing well. A special fund can be created for the purpose.