In August, the RBI had allowed a one-time restructuring for personal loans and non-MSMEs corporate borrowers who had an aggregate exposure of more than Rs 25 crore and were affected by stress related to COVID-19.
“It is unlikely that up to 99 percent of companies (excluding MSMEs) rated by Crisil will opt for the RBI’s single debt restructuring (OTDR), indicates a preliminary analysis of 3,523 non-MSMEs,” the report states de said the rating agency.
Of the sample, only one percent indicated that they would request a one-time debt consolidation. This is despite the fact that two-thirds of rated entities are eligible under the parameters proposed by the KV Kamath Committee established by the RBI, he said.
The rating agency’s senior director, Subodh Rai, said: “Improving business confidence due to increased economic activity over the past two months and the expectation of a strong recovery in the next fiscal year are persuading borrowers that they bypass the OTDR. ”
Another deterrent is the impact on the borrower’s long-term credit history: The accounts of those who opt for OTDRs would be classified as restructured advances by lenders, which could affect their ability to incur debt in the future, he said.
The report said that for about 44 percent of companies rated by Crisil, more than three-quarters of their debt comprises short-term working capital services. Therefore, making use of OTDR would have negligible benefits, as resolution plans under this scheme focus on deferring the payment of the principal of the long-term debt, he said.
“Such borrowers, rather than opting for debt consolidation, may prefer to seek additional working capital financing as announced by the RBI in its COVID-19 regulatory package,” he said.
At the beginning of the shutdown, 968 companies, or almost 27 percent of the sample as a whole, had opted for the moratorium allowed by the RBI. Up to 98 percent of them are not looking for an OTDR.
According to the director of the agency, Sameer Charania, “The recently announced Emergency Line of Credit Guarantee Scheme (ECLGS) for the health care sector and 26 other stressed sectors, which allows companies to borrow up to 20 per percent of their outstanding installments will further deter borrowers – especially those facing temporary liquidity problems – from opting for debt consolidation. ”
However, companies in highly affected sectors, such as hotels, retail, real estate and textiles, would continue to prefer OTDR given their longer business recovery times, he added.
The report further said that greater clarity will emerge closer to the regulatory deadline of December 31, 2020, set by the RBI to invoke debt restructuring plans.
The number of companies seeking OTDRs may increase if sentiment around the recovery fades or if COVID-19 woes continue to mount, leading to further restrictions on economic activity, he added.
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