The KV Kamath Committee has listed FMCG, consumer durables and corporate retail outlets among 26 sectors that require financial restructuring in the aftermath of the COVID crisis.
The five-member committee appointed by the Reserve Bank of India (RBI) has recommended five financial parameters or ratios with sector-specific thresholds that lending institutions can factor in as part of a graded approach to restructuring or finalising a resolution plan for a borrower.
The five parameters for each sector are the total outstanding liability to adjusted networth, total debt to EBITDA, debt service coverage ratio (DSCR), average DSCR and current ratio.
Debt/EBITDA ratio signals how well a company will be able to service its loans and other liabilities and a lower ratio indicate a higher capability to service loans and liabilities. While this ratio has been kept at less than or equal to five for corporate retail outlets, it has been pegged at less than or equal to four for consumer durables/FMCG.
Corporate retail outlets are those that attain economies of scale, customer loyalty, brand recognition, purchase ability, trained employees and higher purchase of goods and are mostly located in metropolitan cities.
The panel tabled its report on September 4 wherein it has suggested financial parameters that include aspects related to leverage, liquidity and debt serviceability, the RBI said.
The panel has proposed elaborate calculation criteria based on which the RBI will prepare the final guidelines. Listing the criteria, the panel said the sector-specific parameters may be considered as guidance for the preparation of a resolution plan for a borrower in the specified sector.
The resolution plan may be prepared based on the pre-COVID-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance in Q1 and Q2FY21, to assess the cash-flows for FY21/FY22 and subsequent years.
“In these financial projections, the threshold TOL/Adjusted TNW and Debt/ Ebitda ratios should be met by FY23. The other three threshold ratios should be met for each year of the projections starting from FY22. The base case financial projections need to be prepared as part of the resolution plan,” the committee said.
Besides Kamath, other members of the panel are banking consultants Ashvin Parekh, Diwakar Gupta, TN Manoharan and Sunil Mehta.
The lockdown of more than three months has impacted consumer durable durables/FMCG and retail sectors. Within the FMCG space, the supply chain was affected due to the lockdown, impacting sales while consumer durables and retail outlets of clothing and apparel were shut as it was considered as non-essential.
Despite Unlock 4.0, the retail outlets have not witnessed encouraging footfalls.
A business survey conducted by the Retailers Association of India (RAI) in June with more than 100 big and small retailers revealed that there has been no significant growth in business for retailers even during the second half of June.
Retailers witnessed 67 percent degrowth from June 15 to June 30 compared to the corresponding period last year. During the same time frame, malls witnessed 77 percent degrowth year-on-year on account of not being allowed to open uniformly across the country. High street retail showed degrowth of 62 percent YoY despite being allowed to open across India.In June, large size retailers (more than Rs 300 crore revenue) witnessed a degrowth of 59 percent YoY and small retailers (<Rs 300 crore sales) witnessed a degrowth of 69 percent YoY. Region-wise findings indicated West at -74 percent YoY and North at -71 percent YoY continued to suffer the most. East and South both signalled a 62 percent on year fall in sales.