Half of Crisil-Rated Mid-size Companies Can Recast Loans

A day after the RBI allowed another round of restructuring, largest domestic ratings agency Crisil on Thursday said half of the mid-size companies in its portfolio will be eligible for the recast.

Companies with relatively weaker credit profiles, and part of low-resilience sectors are expected to benefit more from the scheme, Crisil said, specifying that mid-sized companies are those having aggregate exposures of less than Rs 500 crore.

RBI Governor Shaktikanta Das had on Wednesday announced another window to recast loans given the second wave of Covid-19 infections. 

As per the announcement, individuals, small businesses and MSMEs having aggregate exposure of up to Rs 25 crore would be eligible for consideration under the Resolution Framework 2.0, provided they have not availed of restructuring under any of the earlier frameworks and were classified as standard accounts as on March 31.

Crisil said it rates 6,800 mid-sized entities and more than half of them are small and medium enterprises (SMEs) having a bank loan exposure of up to Rs 25 crore.

Over 3,400 of the mid-sized companies were classified as standard accounts, making them eligible to avail restructuring. 

"The RBI's intervention is timely and companies with weaker credit profiles will benefit more from the restructuring scheme," its Chief Ratings Officer Subodh Rai said.

Four out of five companies eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks, he said, adding that the new recast scheme will provide interim liquidity relief to these companies to cope with near-term cash-flow mismatches.

In FY21, a third of the SMEs had cushioned their liquidity by availing of the RBI moratorium on bank loans. This relief was complemented by a bounce back in demand, which limited the number of companies that had opted for restructuring under the Resolution Framework 1.0, it said.

The agency said it has analysed the impact of the proposed restructuring on a sectoral basis, categorising 43 sectors (excluding the financial sector) into three categories -- high, moderate and low resilience.

Companies in low-resilience sectors such as retail, hospitality, auto dealerships, travel and tourism, and residential real estate are likely to be impacted the most by the resurgence of the pandemic, and therefore more likely to opt for the restructuring, its director Rahul Guha said.

On the other side, companies in high-resilience sectors such as chemicals, pharmaceuticals, dairy, information technology and consumer staples/FMCG may not face any significant liquidity pressures on account of steady consumer demand and will be least likely to go for restructuring, he added.

The agency further said it will assess the impact of restructuring 2.0 on its rated credits on a case-to-case basis after factoring in the timeliness and terms of the restructuring of debt, as sanctioned by the respective lenders and regulatory guidelines.

If the impact of the second wave of the pandemic is not contained over the next 2-3 months, more restructuring may be necessitated, it cautioned.