An expert panel appointed by the Reserve Bank of India (RBI) has submitted its report on the resolution framework for COVID-hit assets to the central bank.
The committee, headed by veteran banker KV Kamath, has recommended financial ratios for 26 sectors which could be factored in by lending institutions while finalising a resolution plan for a borrower.
The Reserve Bank of India (RBI) has allowed greater leeway to the real estate sector with the highest debt to EBITDA ratio permissible among the 26 sectors it has identified.
While the ratio has been kept at less than or equal to nine for residential real estate, it has been pegged at less than or equal to 12 for commercial real estate. With this move, the real estate sector will get more headroom in terms of financial performance and the projections thereof.
However, other ratios such as adjusted tangible net worth, current ratio and debt service coverage ratio have also been specified for the real estate sector, which are more or less on a par with other industries.
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 realty index is trading in the red, down half a percent with Godrej Properties shedding 2 percent followed by Oberoi Realty, Sobha and Sunteck Realty.
The panel has put five key parameters for each sector for lenders to decide the resolution. These include total outstanding liability divided by adjusted net worth, total debt divided by EBITDA, debt service coverage ratio (DSCR), average DSCR and current ratio.
The panel has proposed an 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 preparation of 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.