Motilal Oswal: Kamath Panel Recommendations - Prudent Approach In Resolving Covid-19 Related Corporate Stress
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Motilal Oswal Report
We hosted an interaction with Mr Ashvin Parekh, Managing Partner– Ashvin Parekh Advisory Services, who is also a member of the Expert Committee led by Mr KV Kamath on the Resolution Framework.
The Committee has assessed the impact of Covid-19-related stress on the Banking sector and proposed a resolution framework to the Reserve Bank of India, which has been largely accepted by the central bank for implementation.
We discussed the rationale behind identifying the sectors and the specific threshold limits on five key financial parameters.
Here are the key insights from the discussion:
The underlying principles for the Resolution Framework (RF) were clearly established by the regulator.
The key principles used are: Consider only those borrowers who were standard as of March 01, 2020 and continue to remain standard.
The new restructuring framework should differentiate from the existing framework, already in place for non-standard assets.
The period over which the asset should return to normalcy and start paying all dues.
The Committee also needs to make sure not to impact any other stakeholders adversely, i.e., customers, employees, lenders, depositors, etc.
Furthermore, there has been a significant focus on ensuring the right compliance structure in the Resolution Framework, such as Forensic Audit and Independent Credit Evaluation, to establish the financial viability of the resolution plan and its legal requirements, etc.
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