- The Reserve Bank of India laid out five specific financial ratios and sector specific areas for resolution of Covid-19 related stress across 26 sectors.
- Sectors like auto components, aviation and tourism have been worst impacted by the Covid-19 pandemic.
- The central bank on August 7 had announced the constitution of the panel under the Chairmanship of former ICICI Bank head KV Kamath to make recommendations on one-time loan restructuring.
- The panel had to identify financial parameters under the ‘Resolution Framework for Covid19-related Stress’ along with sector specific benchmark ranges.
- The recommendations of the Committee have been broadly accepted by the Reserve Bank.
- The financial ratios suggested by the Kamath committee are as follows;
- Total Outside Liabilites/Adjusted Tangible Net Worth
- Total Debt/EBITDA
- Current Ratio (Current Assets divided by current liabilities)
- Debt Service Coverage Ratio (DSCR)
- Average Debt Service Coverage Ratio (ADSCR).
- Sectors specified by RBI include automobiles, tourism, power, tourism, cement, gems and jewellery, logistics, mining, manufacturing, real estate, shipping, chemicals among other few.
- While the Kamath panel has recommended financial parameters that include aspects related to leverage, liquidity and debt serviceability,
- it has said are standard on date of identification for restructuring, forensic audit may be required
- if the account happens to slip beyond the implementation period of 180 days to establish whether there was diversion of funds and identify malfeasance.
- While the six-month moratorium on loan repayments ended on August 31, the RBI has allowed banks to recast loans which were classified as standard as on March 1, 2020.
What Is Earnings Before Interest, Taxes, Depreciation, and Amortization – EBITDA?
- EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances.
- EBITDA, however, can be misleading because it strips out the cost of capital investments like property, plant, and equipment.
- This metric also excludes expenses associated with debt by adding back interest expense and taxes to earnings.
- Nonetheless, it is a more precise measure of corporate performance since it is able to show earnings before the influence of accounting and financial deductions.
- EBITDA=Net Income+Interest+Taxes+D+A
- Where: D=Depreciation A=Amortization