Nearly All Large Firms Unlikely To Opt For RBI’s One-Time Debt Recast: Crisil
A sign for the Reserve Bank of India (RBI) sign is displayed inside central bank’s headquarters in Mumbai, India, on Thursday, Feb. 6, 2020. Photographer: Dhiraj Singh/Bloomberg

Nearly All Large Firms Unlikely To Opt For RBI’s One-Time Debt Recast: Crisil

About 99% of large companies are not planning to opt for the Reserve Bank of India’s one-time debt restructuring scheme, according to Crisil Ratings.

About two-thirds of such entities are eligible for the debt recast scheme, Crisil said in a report based on analysis of 3,523 firms, each with a total loan exposure of more than Rs 25 crore, rated by it.

“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 (one-time debt restructuring scheme)," Subodh Rai, senior director at Crisil, said in the report. "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.”

The RBI on Aug. 6 allowed a one-time debt recast of large corporate loans and personal advances, along with debt of micro, small and medium borrowers, provided they were classified as standard as on March 31. The central bank offered the restructuring window till March 2021 as a relief from stress caused by one of the strictest lockdowns in the world.

Besides the fear of lower credit rating, nearly 44% of large corporates said that over three-fourths of their debt comprised short-term working capital facilities. That, they said, made availing RBI’s debt recast scheme to defer principal repayment on long-term debt a redundant exercise.

Such companies may rather prefer additional working capital financing as announced by the central bank under its Covid-19 regulatory package, according to Crisil.

The recently announced Emergency Credit Line Guarantee Scheme for healthcare and 26 other stressed sectors will further dissuade borrowers, especially those facing temporary liquidity issues, from opting for debt recast, said Sameer Charania, director at Crisil. The second iteration of the credit guarantee scheme allows companies to borrow up to 20% of their outstanding dues.

But companies from heavily affected sectors such as hotels, retail, real estate, and textiles would still prefer the one-time debt recast given their longer business-recovery timelines, he said.

Early into the lockdown, the Crisil report said, 968 companies, or nearly 27% of the sample set, had opted for the moratorium allowed by the RBI. 98% of these were no longer seeking one-time debt recast.

But that may change if sentiment around recovery dampens or Covid-19 infections keep increasing, leading to fresh curbs on economic activity, the report said. “These are early days and greater clarity will emerge as we move closer to the regulatory deadline of Dec. 31, 2020, set by the RBI for invoking debt restructuring plans."

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