Kamath panel hands a raw deal to MSMEs: FISME
New Delhi, Sep 8 (KNN) The much-awaited Kamath panel has submitted its report on framework for one-time re-structuring of industries /sectors affected by COVID-19 pandemic.
The high-power panel headed by veteran banker KV Kamath, was announced by the Reserve Bank of India (RB sometime back when the Insolvency and Bankruptcy code was held in abeyance to help industries to bear the Covid – 19 shock.
The good news is the committee submitted a crisp 15-page report within a short time, with quantitative prescription for sector-wise restructuring of the industries.
The bad news is there is nothing for the MSMEs as the report specifies a size agnostic, sector specific formula for the one time restructuring, with criteria many of which may not be applicable for the MSMEs. And wherever applicable, the majority of the stressed MSMEs will not meet the benchmarks specified.
The panel has put five key parameters for lenders to decide the resolution. These include total outstanding liability divided by adjusted net worth, total debt divided by Ebidta, debt service coverage ratio (DSCR), average DSCR and current ratio.
The committee has recommended financial ratios for 26 sectors which could be factored in by lending institutions while finalising a resolution plan for a borrower.
The 26 sectors selected by the panel for the resolution framework are: Power, construction, iron and steel manufacturing, roads, real estate, trading wholesale, textiles, chemicals, consumer durables/FMCG, non-ferrous metals, pharma, logistics, gems and jewellery, cement, auto components, hotels, mining, plastic products manufacturing, automobile manufacturing, auto dealership, aviation, sugar, port and port services, shipping, building materials, and corporate retail outlets.
According to the communique issued by Federation of Indian Micro and Small & Medium Enterprises (FISME)- the national MSME body, sectors like Engineering, Food, Leather and Footwear, etc., which are dominated by the MSMEs have been left for the Bankers to make their own assessment.
“According to RBI criteria only enterprises which were not in default or had overdue of instalments for not more than 30 days on 1st March, 2020 will be eligible for the re - structuring. So, the lakhs of MSMEs which were defaulting before that due to various reasons and waiting for re - structuring as per the earlier guidelines of RBI will be out of purview of the restructuring suggested by the Committee”, it added.
The Kamath Committee suggested that the resolution plans 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.
However, how this will be applied to enterprises which were closed during Q1 due to lockdown and could not come to rated production due to supply chain, demand and cash flow problems is not very clear.
Besides Kamath, other members of the panel are banking consultants Ashvin Parekh, Diwakar Gupta, TN Manoharan and Sunil Mehta.