As many as 99 per cent of companies, excluding MSMEs, rated by credit ratings agency CRISIL are unlikely to opt for the RBI's one-time-debt restructuring (OTDR), it said, citing a preliminary analysis of 3,523 such non-MSME firms.
The RBI had, on August 6, 2020, announced the scheme as a relief measure for non-MSME corporate borrowers having an aggregate exposure of greater than Rs 25 crore and were under stress due to the COVID-19 pandemic.
But of the CRISIL sample, only around 1% indicated that they would apply for OTDR. This is despite two-thirds of the rated entities being eligible based on the parameters proposed by the K V Kamath Committee set up by the RBI.
"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," Subodh Rai Senior Director, CRISIL Ratings said. "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," he added.
Additionally, for around 44% of CRISIL-rated corporates, more than three-fourth of their debt comprises short-term working capital facilities.
In these cases, availing of OTDR would have negligible benefits, as the resolution plans under this scheme are focused on deferring principal repayment of long-term debt, the agency 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. Early into the lockdown, 968 companies, or approximately 27% of the sample set, had opted for the moratorium allowed by the RBI. As much as 98% of these are not seeking an OTDR for reasons mentioned earlier," CRISIL noted.
"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% of their outstanding dues, will further dissuade borrowers -- especially those facing temporary liquidity issues -- from opting for debt recast," Sameer Charania, Director, CRISIL Ratings stated.
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, he added.
The report further said greater clarity would emerge closer to the regulatory deadline of December 31, 2020, set by the RBI for invoking debt restructuring plans.
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, it added.
The State Bank of India's economists too, in a recent research report, had indicated a similar trend. Citing incoming data, the bank's report stated that fears of a massive surge in bad loans for the banking sector could be unwarranted.