Most companies that availed loan moratoriums have sub-investment grade ratings and were facing challenges before the onset of the pandemic itself due to slowing economic growth, domestic ratings agency Crisil said on Monday. In a report released on the last day of the moratorium, the agency said it analysed 2,300 non-financial sector companies which have taken recourse to non-payment of loans, and found that three-fourths of entities are sub-investment grade.
The RBI introduced the loan moratorium from March to help businesses and individuals impacted by the pandemic. Interest on the loans will keep getting accrued, but a borrower will not be tagged as a defaulter for non-payment. It can be noted that the Indian economy has been grappling with a slowdown in economic growth for multiple quarters and GDP came down to 3.1 per cent in January-March quarter.
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"Three out of four entities that availed of moratorium are rated in the sub-investment grade. Most of them were grappling with a slowing economy before the pandemic began," the note from Crisil said. It said the moratorium has provided much-needed liquidity support to mid-sized sub-investment grade companies rated 'BB+' or lower and has also prevented a sharp weakening in their credit profiles.
Only one out of four companies that availed the moratorium is rated in the investment grade, the agency said, explaining that they took recourse to the dispensation to build a liquidity cushion for exigencies in the near term. "While every sector has been affected by the dislocations stemming from the pandemic, the majority of those with lower resilience have availed of the moratorium," its senior director Subodh Rai said.
Heavily impacted sectors such as gems and jewellery, hotel, auto components, automobile dealers, power (power utilities, independent power producers and energy traders), packaging, and capital goods and components, have seen a fifth of the companies availing moratoriums whereas its only one in ten for less-impacted sectors such as pharmaceuticals, chemicals, FMCG, secondary steel and agriculture. The agency also found that revenue size seems to be having an influence on taking to moratorium, and the smaller-sized ones tend to take it more.
Mid-sized companies having a turnover of between Rs 300-1,500 crore which have availed the moratorium are thrice the number of those having a turnover of above Rs 1,500 crore, it said. "The moratorium has been crucial in averting sharp downward rating actions in the face of shrinking turnover and declining profitability. It helped companies manage the sudden stretch in working capital cycles and cash flows amid the bleak business environment," its director Rahul Guha said.
The demand environment continues to be muted and companies in low-resilience sectors will continue to be under stress for two-three quarters, it said. Debt restructuring, which kicks-off from Tuesday, can play a crucial role in supporting the credit profiles of mid-sized companies, it added.