1% of Non-MSMEs Opt for One-time Debt Recast

According to a report by Crisil Ratings, Only 1% Of Non-MSME Companies May Opt For One-Time Debt Restructuring (OTDR) of Reserve Bank of India (RBI). Since the economic activities are improving, and companies' recovering is expected in the up-coming financial year, it has been approximately 99% of non-MSMEs are unlikely to opt for the one- time debt restructuring  of RBI. According to the report, information gathered through a preparatory analysis of 3,523 Crisil-rated non- MSMEs.

In the month of August, the one-time restructuring had been allowed by RBI for personal loans and for non-MSME borrowers that had an aggregate exposure of greater than Rs 25 crore and incurred losses due to COVID-19 pandemic.

Only one per cent out of the sample companies showed interest to apply for a one-time debt recast. While, according to the parameters determined by the K V Kamath Committee set up by the RBI, two-thirds of the rated companies were eligible, it mentioned.

Subodh Rai, senior director of the rating agency stated that:"Improving business sentiment on account of increased economic activity over the past couple of months, and expectation of a sharp recovery next fiscal are persuading borrowers to skip OTDR."

He added that: "Another deterrent is the impact on the borrower's long-term credit history - accounts of those opting for OTDR would be classified as restructured advances by lenders, which could impact their ability to raise debt in future."

According to the report, more than three-fourths of the debt of almost 44 per cent of Crisil-rated corporates consist of short-term working capital facilities; therefore it showed that OTDR would avail a nominal benefit, because the resolution plans under this scheme are focused on deferring principal repayment of long-term debt.

It said: "Such borrowers, instead of opting for debt recast, may prefer to seek additional working capital financing as announced by the RBI under its COVID-19 regulatory package."

At the first of lockdown, 968 companies, or almost 27 per cent of the sample companies, had opted for the moratorium allowed by the RBI. As of now, 98 per cent out of these number are not willing for OTDR anymore.

As Sameer Charania, the agency's director, stated "The recently announced Emergency Credit Line Guarantee Scheme (ECLGS) for the health care sector and 26 other stressed sectors, which allows companies to borrow up to 20 per cent of their outstanding dues, will further dissuade borrowers -- especially those facing temporary liquidity issues -- from opting for debt recast."

He added "However, companies that belong to highly impacted sectors such as hotels, retail, real estate, and textiles would still prefer OTDR given their longer business-recovery timelines."

Moreover, pursuant to the report, the significant clarity will emerge closer to the regulatory deadline of December 31, 2020, set by the RBI for invoking debt restructuring plans.

It added the number of companies seeking OTDR may increase if sentiment around recovery dampens or COVID-19 afflictions keep increasing, leading to fresh curbs on economic activity.