Debt recast scheme finds few takers as growth picks up | Economic Times

Mumbai: Improving business sentiment and a gradual economic recovery have minimised the number of companies seeking debt restructuring under the central bank’s framework announced in August, brightening the recovery prospects for lenders that have likely made fairly sizeable provisions against potentially doubtful advances.Rating agency Crisil said its preliminary analysis show that 99% of the non-micro and small enterprises (MSME), or bigger, companies rated by it that qualify for the restructuring are unlikely to opt for the one-time-debt-restructuring (OTDR) programme.Crisil analysqed 3,523 non-MSME companies under its rating watch which qualify for restructuring in case they opt for it. Crisil otherwise rates about 10,000 companies, including MSMEs.“Improving business sentiment on account of increased economic activity over the past couple of months, and expectations of a sharp recovery next fiscal are persuading borrowers to skip OTDR,” said Subodh Rai, senior director, Crisil Ratings. “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.” On August 6, RBI had announced a restructuring scheme as a relief measure for non-MSME corporate borrowers having an aggregate exposure of greater than ₹25 crore and were under stress due to the Covid-19 pandemic.Crisil said of its sample companies, only around 1% indicated that they would apply for OTDR, despite two-thirds of the rated entities being eligible based on the parameters proposed by the K V Kamath committee set up by the central bank.Importantly, about three-fourths of the debt for about 44% of Crisil-rated companies comprises of short-term working capital facilities, which means availing restructuring would have negligible benefits for these companies as the resolution plans under this scheme are focused on deferring principal repayment of long-term debt. “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,” Crisil said.The number of companies which had opted for a moratorium early into the lockdown have also avoided taking the restructuring. Crisil said that 968 companies, or 27% of the sample set, had opted for the moratorium allowed by the RBI. About 98% of these are not opting for restructuring. “The recently announced Emergency Credit Line Guarantee Scheme for the health care and 26 other stressed sectors, which allows companies to borrow up to 20% of their outstanding dues, will further dissuade borrowers -- especially those facing temporary liquidity issues -- from opting for debt recast,” said Sameer Charania, director, Crisil Ratings.