Barely 1% of eligible companies rated by CRISIL have opted for, or are contemplating, the debt restructuring facility offered by the Reserve Bank of India (RBI) under its Resolution Framework 2.0, according to a survey of around 4,700 companies by the ratings agency.
As much as 95% of such companies opting for restructuring belong to the sub-investment grade rating category, CRISIL said, adding that this is not reflective of a large section of MSMEs in India, which are not rated by it.
"As much as 95 per cent of those opting for, or are inclined to seek restructuring, belong to the sub-investment grade rating category. Put another way, investment-grade rated corporates are showing high resilience," CRISIL said.
The fact that only a handful of companies are exploring the restructuring option could be reflective of a relatively improved business outlook accompanying a pick-up in economic activity in the aftermath of the COVID-19 pandemic's second wave.
"The quick recovery in demand after moderation during the second COVID-19 wave, and sanguinity around economic growth have led corporates to give the restructuring option a miss. The more localised and less stringent nature of curbs/restrictions during the second wave has meant relatively lower disruption in business activities compared with the first wave. So, the muted response is par for the course," said Subodh Rai, Chief Ratings Officer, CRISIL Ratings.
The RBI had announced COVID restructuring scheme 2.0 in May this year for borrowers, comprising individuals, small businesses, and MSMEs, with aggregate exposure of up to Rs 25 crore.
The scheme was further extended in June to cover an aggregate debt of Rs 50 crore. This increase in threshold led to around two-thirds of the CRISIL-rated mid-sized companies becoming eligible for restructuring. The ratings agency said its investment-grade corporate have shown strong resilience amid the COVID-19 pandemic and hardly anyone is planning to avail the recast.
In fact, 95% of companies that have opted or showing an inclination for restructuring 2.0 are rated in the sub-investment grade rating category. Within these, four out of five are rated in the B or lower rating categories, clearly indicating that only companies with weak credit quality are exploring restructuring.
"Most of the companies that have opted for, or are contemplating, restructuring 2.0 belong to the low-to-medium resilience4 sectors such as hospitality, educational services, textiles, construction and gems and jewellery. Demand recovery in some of these remains uncertain because of the continuing overhang of the pandemic," said Nitin Kansal, Director, CRISIL Ratings.
Any weakening of sentiment around recovery, and a likely third wave leading to fresh curbs on economic activity, will influence more companies to seek restructuring 2.0, the agency noted.
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