ICICI Securities: Covid-19 Resolution Framework: Expert Committee Report - Wider In Scope Than Expected; Stress All-Pervasive

ICICI Securities Report

Recommendations submitted by Expert Committee, led by Mr. KV Kamath, on suitable financial parameters (for Covid-19 related stress resolution) and sector-specific ranges (serving as a boundary conditions) seem to be broader in scope than anticipated.

Committee takes cognisance of the fact that Covid impact is pervasive all across and 26 sectors for which thresholds have been prescribed together account for more than 25% of systemic bank credit and 40% of non-retail/non-agri credit (refer chart 1).

Also, the committee has defined five financial parameters and recommended threshold ranges that are reasonably comfortable than sectoral averages – barring few industries that are already reeling under stress (refer table 1).

Our analysis is based on latest published financials of 1,100 companies with debt more than Rs 5 billion (representing more than 80% of the debt).

However, the framework leaves scope of subjectivity as thresholds are to be met FY22/FY23 onwards based on base-case financial projections.

Besides, for sectors where thresholds are not specified, lenders can make their own internal assessment for solvency ratio though average liquidity and serviceability ratios are to be met.

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