99% Indian Companies Reject One-Time Covid Loan Restructuring Offer: Find Out Why
On August 6, 2020, the RBI announced a relief scheme for non-MSME companies and organizations having an aggregate exposure of more than Rs 25 crore, affected during Covid.
Now, the credit rating agency Crisil has found out in its preliminary analysis that about 99% of such non-MSME companies will not likely apply for RBI’s one-time debt restructuring (OTDR), due to an improvement in economic activities.
Only 1% Non-MSMEs to Apply For RBI’s Relief
Crisil took a preliminary analysis of 3,523 non-micro, small and medium enterprises rated by Crisil itself and found out that about 99% of these companies are unlikely to opt for RBI’s OTDR.
The agency states that it is due to an improvement in business sentiment and economic recovery that these corporates are not availing this facility.
This is despite two-thirds of the rated entities being eligible based on the parameters proposed by the KV Kamath Committee set up by the RBI.
Why are these Cos Not Opting for Relief Scheme?
The Senior Director of CRISIL Ratings, Subodh Rai says,
“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.”
He added, ““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”.
Also, 44% of these CRISIL-rated companies have short-term working capital facilities included in their debts.
In such a scenario, there will be no benefit of availing the OTDRs, as the resolution plans under this scheme focus only on adjourning principal repayment of long-term debt.
In this respect Crisil adds, “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”.
However, a firm conclusion and clarity can only be expected as we come closer to the regulatory deadline set by RBI for invoking debt restructuring plans, which is until Dec 31, 2020.