ACMA optimistic on respite for auto sector in KV Kamath led expert committee report

The Expert Committee led by the former chief of the new Development Bank of BRICS K V Kamath on Resolution Framework for Covid19 related Stress has submitted its report to the Reserve Bank of India (RBI) on September 7, 2020.

Thanking the committee for the report and explaining the perspective of the Auto Components sector, Deepak Jain, president ACMA said, “We are thankful to the expert committee led by K V Kamath for the report which is indeed very timely and much-needed guideline document for the restructuring of loans. The auto-components sector, as rightly identified is one among the stressed sectors that is likely to gain from its recommendations. The sector, dominated by small and medium enterprises, witnessed severe hardships on the front of cashflow and working capital during the lockdown period. With green shoots now emerging in the market, we are hopeful that the report will come handy in resolving the borrowing related issues of the sector and financing of technology investments for the industry to become Atma-nirbhar and innovative.”

Jain further added that “Considering the average asset life in the industry to be around 10 years, we recommend the committee to enhance the ‘Total Debt/EDITDA ratio’ to 6 times from the current 4.5 times, the premise of repaying loans in 4.5 years for assets that will last over double the time needs to be reconsidered. Further, considering the cost of borrowing capital in India is one of the highest in the world, we request the Committee to recommend lending to the auto component industry at the same interest spread as the priority sector, to secure the industry from any downgrade in ratings due to the adverse impact of Covid-19 related disruptions.”

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