RBI's Shaktikanta Das bats for small depositors, defends loan restructuring

RBI Governor Shaktikanta Das today invoked the 'depositor interest' and 'financial stability'  while defending the new time bound loan restructuring scheme for select 26 Covid impacted sectors with the pre-defined threshold of financial ratios for resolution. Outlining the whole rationale and reasoning behind the restructuring scheme, the RBI Governor Das said "it has to be a very balanced and careful call on the part of the RBI." He said that the primary concern of any banking system has to be the protection of depositors interest.

Governor was interacting with industry body FICCI via a virtual conference. "The depositors runs into crores of people whereas the borrowers are in lakhs," said the Governor while adding , "there are small depositors, middle class, retired people etc."

The Governor also highlighted that the aspect of financial stability which has to be kept in mind. "We don't want a repeat of the earlier situation of high NPAs," said Governor. The banking system is actually yet to recover from the loan extended in the boom period of late 2000 decade.

The major criticism of the scheme is the select 26 sectors identified by the K V Kamath committee. There are many other sectors that are crying for a restructuring scheme.

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In fact, there are also suggestions for including pre Covid stressed accounts. As per the RBI, only those borrowers which were classified as standard and with arrears less than 30 days as at March 1, 2020 are eligible for restructuring.

Second, the two year period is also very short, say the industry. Given the GDP contraction and no second stimulus in sight, the recovery will take longer than two years.

Some industry people are also complaining about the five financial ratio parameters set by the committee. The companies going in for restructuring has to maintain the three threshold ratios -- current ratio, debt servicing  and debt coverage ratio -- out of the five ratios for each year of the projections starting from the financial year 2021-22.Take for instance, the committee has fixed the current ratio  of more than 1 for the restructuring.

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A current ratio indicates the company's  ability to pay short term debt and other liabilities  which are due within a year's time. Similarly, the debt service coverage ratio,  which shows the  available cash in the books to pay current debt, has to be more than 1.20 under the restructuring plan. The average debt service coverage ratio has been pegged at more than 1.2. A  debt coverage ratio of more than 1 is considered as good in the banking world. This shows that the company can easily service the loan obligation.

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