Sound Kamath Norms,but Think Beyond

CONTEXT: Recently, Kamath Committee has recommended a graded approach to the restructuring of stressed accounts in the financial sector of India.

Implications of Kamath Committee recommendations:

• Provides a ready reference for banks: to help them decide which companies are eligible for restructuring and which ones are not.

• Protect Bankers: Given the climate of suspicion and incrimination, providing external norms shall help categorizing companies for restructuring.

Way Ahead:

• Standstill on classifying loan:  Not to be categorized as Non-Performing Asset until further instructions.
• Institutes dedicated teams in banks: For restructuring of loans and devising an unbiased approach for the bank.
• Funds of fund: Should be created by GoI on the same lines as that for micro, small and medium enterprises, providing equity support to large firms as well.
• Extended moratorium: On loan servicing; companies should not be treated as a defaulter.
• Provide equity support: similar to the post-2008 crisis when government equity support was provided to the financial sector during stress and later sold off at a profit once their financial health improved.

Conclusion: COVID-19 struck companies need capita not more debt when business creaks along with low gears.