What Analysts Made Of Kamath Committee Recommendations On Debt Restructuring

Here's what analysts have to say:

Jefferies

• Thresholds have been set reasonably, so most companies facing stress should be able to see restructuring.
• Restructuring to begin only after Supreme Court pronounces order in interest-on-interest case.
• Provisions to be higher as slippages are expected to rise for banks.

Macquarie Research

• Recommendations by Kamath committee are likely to result in borrowers who are not able to meet financial benchmarks and would eventually slip to non-performing category.
• The eventual “stressed” book will be 8-10% of the banking system loan book.
• Out of this, 3-5% will fall into non-performing category immediately, attracting higher provisions.

Motilal Oswal

• This is a prudent attempt by the expert committee in laying down the financial parameters for impacted sectors.
• It would enable transparency in restructuring across lenders when focusing on the efficacy of the resolution plan.
• Recent discussions with various bankers suggest that for mid-sized banks, expect 20-25% of the moratorium book to be restructured, while large banks expect restructuring in the low single digits.
• Overall, large banks have strengthened their provision coverage on existing non-performing loans and built higher Covid-19- related provisions.

Bank of America

• Recommendations will induce a degree of uncertainty in the credit market as banks work out restructuring plans with their customers.

ICRA

• The broad parameters suggested by the expert committee specify the boundary conditions for restructuring.
• The efficacy of resolution plans would depend on the appropriateness of the assumptions taken by lenders while taking a view on business recovery.
• Aggressive assumptions on recovery could mean a failure of the resolution plan, while highly conservative assumptions could mean leaving money on the table.

Anand Rathi

• Restructuring will only provide short-term relief to the banks.
• Given the impaired ability to generate healthy cash flow, some of these disruptions may continue for a few more months.
• A good portion of these restructured accounts may eventually turn non-performing.