MUMBAI, India — A new report by Indian rating agency Crisil Ratings has found that barely one percent of eligible companies in the portfolio of the agency have opted for or are contemplating the debt restructuring facility offered by the Reserve Bank of India under its resolution framework 2.0.
The report was published by Crisil Ratings after a survey of 4,700 companies.
“As much as 95 percent of those opting for or are inclined to seek restructuring belong to the sub-investment grade rating category,” states the report.
“Put another way, investment-grade rated corporates are showing high resilience.”
In particular, most of the micro and small enterprises in India are unrated.
The Reserve Bank of India announced the scheme on May 5 for borrowers including individuals, small businesses, and micro, small and medium enterprises with aggregate exposure of up to INR 25 crore ($3.4 million) provided they had not availed of benefits under any of the earlier restructuring frameworks (including resolution framework 1.0 dated August 6, 2020), and were classified as standard accounts as on March 31, 2021.
The Reserve Bank of India raised the aggregate debt; on June 4, the threshold to INR 50 crore ($6.8 million) from INR 25 crore ($3.4 million).
This increase in threshold led to about two-thirds of the Crisil-rated mid-sized companies becoming eligible for the restructuring 2.0 scheme. The fact that only a handful of companies are exploring the restructuring option could reflect a relatively improved business outlook accompanying a pick-up in economic activity in the aftermath of the pandemic’s second wave.
Subodh Rai, Chief Ratings Officer at Crisil Ratings, said the quick recovery in demand after moderation during the second Covid-19 wave and sanguinity around economic growth had led corporates to give the restructuring option a miss.
“The more localized and less stringent nature of curbs/restrictions during the second wave has meant relatively lower disruption in business activities compared with the first wave,” he said.
“So the muted response is par for the course.”
Crisil Ratings’ investment-grade rated corporates have shown strong resilience amid the pandemic, and hardly anyone is planning to avail restructuring 2.0. About 95 percent of companies that have opted or showing an inclination for restructuring 2.0 are rated in the sub-investment grade rating category.
Within these, four out of five are rated in the B or lower rating categories, clearly indicating that only companies with weak credit quality are exploring restructuring.
Nitin Kansal, Director at Crisil Ratings, said most of the companies that have opted for or are contemplating restructuring 2.0 belong to the low-to-medium resilience sectors such as hospitality, educational services, textiles, construction, etc. gems, and jewelry.
Demand recovery in some of these remains uncertain because of the continuing overhang of the pandemic, he said.
Any weakening of sentiment around recovery and a likely third wave leading to fresh curbs on economic activity will influence more companies to seek restructuring 2.0.
This could be especially true for the smaller ones that typically experience more stress.
Greater clarity will emerge closer to the September 30 deadline set by the Reserve Bank of India for invoking restructuring plans, said Crisil.
(With inputs from ANI)
Edited by Saptak Datta and Praveen Pramod Tewari
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