Few takers for one-time COVID debt restructuring: CRISIL

As many as 99 percent of companies, excluding MSMEs, rated by CRISIL are unlikely to opt for the Reserve Bank of India’s (RBI’s) one-time debt restructuring, the agency said citing a preliminary analysis of 3,523 such non-MSME companies. Improving business sentiment and ongoing, gradual recovery have minimised the need for restructuring, the agency said.

The RBI announced the scheme on August 6 as a relief measure for non-MSME corporate borrowers having aggregate exposure of over Rs 25 crore that were under stress due to the COVID-19 pandemic. But of the CRISIL sample, only a percent indicated they would apply for OTDR, the agency said.

“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,” Crisil said.

“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,” said Subodh Rai, Senior Director, CRISIL Ratings.

“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,” Rai said.

Recently, in a research report, State Bank of India’s economists had pointed to a similar trend. The report, citing incoming data, said the fear of huge spike in bad loans for the banking sector could be unfounded. Incoming data suggests that only very few applications have come to banks for loan restructuring so far. Only about Rs 1 lakh crore of corporate loans could go for restructuring compared with Rs 7 lakh crore estimated earlier. The RBI’s NPA estimates could be an exaggeration and most of the past estimates have gone wrong, the SBI report said.

“It is now apparent that the big fear of large slippage in asset quality of banks is unfounded with Indian banks guiding at much lower credit cost than even their Asian counterparts! As far as our understanding goes, very few of the borrowers have till date applied for restructuring and incrementally such borrowers are likely to be much lower,” the SBI report said.

Six months after the Covid-19 outbreak, the economy is showing some signs of recovery. Recently, a Reserve Bank of India’s study said Indian economy could return to positive growth in Q3, a quarter earlier than initially.

To be sure, the RBI said its Economic Activity Index estimates GDP growth at negative 8.6 percent in Q2, suggesting a contraction. This is still lower than the contraction projected in the October policy at negative 9.8 percent. And the RBI study talks about a likely recovery in Q3.