Resolution Framework for Covid-19 Related Stress – Financial Framework

By INSOL India - Editorial Team Posted On : October 29, 2020

On September 7, 2020, the RBI released financial parameters to be considered by lending institutions while finalizing resolution plans in respect of borrowers eligible under the Resolution Framework for Covid-19 Related Stress (“Resolution Framework”) of August 6, 2020. The parameters are a set of five key ratios to be considered by lending institutions, and sector-specific thresholds for the parameters to be considered have also been provided. The key ratios include: (a) ratio of total outside liability to adjusted tangible net worth; (b) ratio of total debt to earnings before interest, tax, depreciation and amortization; (c) current assets divided by current liabilities; (d) debt service coverage ratio; and (e) average debt service coverage ratio over the period of the loan. The parameters have been implemented based on the recommendation of the expert committee under the chairmanship of Shri KV Kamath formed under the Resolution Framework.