With the current economic slowdown triggered by COVID-19, businesses now face an uphill battle to generate free cash flow to timely service their debts. The Reserve Bank of India ("RBI") had announced a slew of regulatory measures to mitigate the impact of COVID-19 on the borrowers ("COVID-19 Regulatory Package")1.

As an immediate relief to the borrowers, the COVID-19 Regulatory Package provided a moratorium for 6 (six) months, i.e., March 01, 2020 to August 31, 2020. Despite lockdowns, the COVID-19 infections have spiked worldwide, and India now holds 2nd position for the total number of the active COVID-19 cases worldwide. Worse yet, a second wave in Europe is looming large and the governments have imposed more stiff economic lockdowns.  Undoubtedly, there is a risk of more permanent damage to different pockets of the economy. Without any clear exit strategy in sight, it is likely that the businesses will slip into en mass insolvencies and the economy will be burrowed into deeper recession.   

To alleviate these concerns, on August 6, 2020, the RBI issued a broad framework for one-time restructuring to avoid the risk of exacerbating the non-performing assets, which could morph into systemic risk for the financial market ("OTR Framework")2.

One Time Restructuring & KV Kamath Committee Report

The OTR Framework offers a special window for lenders under the existing RBI (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June 07, 2019 ("Resolution Framework")3, to implement a resolution plan for personal loans and commercial/ business exposures, without requiring a change in ownership while continuing to classify such exposures as standard assets. More importantly, it also includes all non-banking financial companies ("NBFCs") and housing finance companies within the definition of 'lender'.  

Further, the RBI on September 07, 2020 released a report submitted by a panel ("Kamath Committee") appointed by the RBI and led by eminent banker Mr. KV Kamath ("Kamath Committee Report")4, which rolled out a very robust framework based on certain financial parameters to tailor a one-time restructuring package for a specific borrower. The Kamath Committee Report recommended the following key parameters, among others:


Brief Description

26 (twenty-six) specified sectors

Power, construction, iron and steel manufacturing, roads, real estate, trading wholesale, textiles, chemicals, consumer durables/FMCG, non-ferrous metals, pharma, logistics, gems and jewelry, 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.

5 (five) key financial ratios of borrowers

The 5 (five) key ratios for 26 (twenty-six) sectors that have been announced based on leverage, liquidity and debt serviceability are: Total outstanding liability (TOL) divided by adjusted tangible net worth (Adjusted TNW), total debt divided by EBITDA, debt service coverage ratio (DSCR), average DSCR and current ratio.

Non-specified sectors

Lenders to make own assessment of parameters for other non-specified sectors.

Basis for projected cashflows

The resolution plan must be based on the borrower's pre-COVID operating and financial performance, and the impact of COVID-19 on its operating and financial performance in Q1 and Q2FY21, to assess the cash-flows for FY21/FY22 and subsequent years.

Check on ratios

Key financial ratios to be complied on an ongoing basis and unrectified breach to be considered as financial difficulty.

Inter creditor agreements

Encouragement for signing of inter credit agreements.

Current ratio and debt service coverage ratio for sectors

To be >=1 and >=1.2 respectively in all cases, if not specified otherwise.

Subsequently, to remove certain doubts under the OTR Framework, the RBI released a set of frequently asked questions ("FAQs")5. Here is a high-level summary of the clarifications based on the FAQs: 



Eligibility for resolution

  • Debt availed after March 01, 2020, will be eligible for restructuring. 
  • Actual debt that may be considered for resolution will be the outstanding as on the date of invocation, i.e., the date on which the borrower and the lender decide to restructure the account. However, the borrower's account should have been classified as standard, but not in default for more than 30 (thirty) days as on March 01, 2020. 
  • Debt overdue by more than 30 (thirty) days as on March 01, 2020 and subsequently regularised will not be eligible for restructuring. 
  • For borrowers who are ineligible for resolution under the OTR Framework, the existing instructions under various circulars and guidelines issued by the RBI as applicable will still be in force.

Applicability of OTR Framework for all


  • The OTR Framework can be invoked for resolution of all exposures of lenders to the eligible borrowers, including investment exposures which are credit substitutes, such as corporate bonds, commercial papers, etc.

Kamath Committee approval and applicability of financial parameters

  • Financial parameters as per the Kamath Committee Report will be applicable to all eligible exposures of lenders, except for personal loans.
  • Resolution plans of all accounts, where the aggregate exposure of the lender at the time of invocation of the resolution process is at least INR 1,500 crore, will be approved by the Kamath Committee.
  • For any sector which is not covered by the Kamath Committee, lenders will make their own internal assessments regarding the TOL divided by Adjusted TNW, total debt divided by EBITDA, DSCR, average DSCR and current ratio.

Independent credit evaluation

  • Accounts where the aggregate exposure of the lender at the time of invoking the resolution process is at least INR 100 crore will require a credit opinion of 'RP4' or better for the residual debt.

Classification of personal loans

  • Loans availed by individuals for business purposes or loans availed by individuals and non-individual entities together as co-borrowers will not qualify as personal loans. Resolution for such loans will be in accordance with the process permitted for commercial/ business loans under the OTR Framework.

Eligibility of farm credits; joint liability group, selfhelp group and microfinance institution loans

  • Loans given to farmer households by all lenders, including NBFCs, are eligible for resolution, unless covered by the specific exclusions as listed in the OTR Framework.
  • Farm credit exposures of all lenders, including NBFCs, are excluded from the scope of the OTR Framework. However, loans to allied activities, such as dairy, fishery, animal husbandry, poultry, bee-keeping, and sericulture are eligible for resolution under the OTR Framework.
  • All microfinance institution, joint liability group and self-help group loans meeting the basic eligibility criteria are eligible for resolution, unless covered by the specific exclusions as listed in the OTR Framework.

Specificities for real estate sector

  • To ease the burden on the real estate sector and to ensure that projects are not delayed due to defaults by the parent entity, for borrowers having both residential and commercial real estate business, financial parameters for resolution plans may be applied at the project level instead of the entity level.
  • The RBI has further clarified that the requirement of an inter-creditor agreement (ICA) in respect of the entity to which lenders have exposures is a basic feature of the Resolution Framework, and is consequently applicable under the OTR Framework, including by designing different resolution approaches for different projects under the same borrower within an ICA.
  • Similarly, apart from the escrow account required to be set up at the legal entity level as required by the OTR Framework, there is no prohibition for setting up additional separate escrow accounts at each project level, if required by the lenders.

Restructuring of under implementation projects

  • Restructuring of under implementation projects involving deferment of date for commencement of commercial operations (DCCO) are excluded from the purview of the OTR Framework.

To conclude, the FAQs provide very critical and timely clarification for implementation of the OTR Framework.


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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.