With the recovery in demand and growing confidence in economic growth, very few corporates have opted or looking for debt restructuring under the RBI’s Resolution Framework 2.0, according to a report.
Domestic rating agency Crisil Ratings in the report released on Thursday said barely 1 per cent of eligible companies in its rating portfolio have opted for or are contemplating restructuring under the Resolution Framework 2.0.
The finding is based on an analysis of around 4,700 companies rated by the agency.
“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,” Crisil Ratings Chief Ratings Officer Subodh Rai said in the report.
The more localised and less stringent nature of curbs/restrictions during the second wave has meant relatively lower disruption in business activities compared to the first wave. So, the muted response is par for the course, he said.
On May 5, 2021, the RBI had announced Resolution Framework 2.0 for borrowers, including individuals, small businesses, and MSMEs with an aggregate exposure of up to Rs 25 crore, provided they had not availed of benefits under any of the earlier restructuring frameworks (including Resolution Framework 1.0) and were standard as on March 31, 2021.
On June 4, 2021, the RBI raised the aggregate debt threshold to Rs 50 crore from Rs 25 crore.
This increase in threshold led to about two-thirds of the Crisil-rated mid-sized companies becoming eligible for the restructuring 2.0 scheme, the report 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 pandemic’s second wave,” the agency said.
Crisil said its investment-grade rated corporates have shown strong resilience amid the pandemic and hardly anyone is planning to avail restructuring 2.0.
In fact, 95 per cent of companies, which have opted or showing an inclination for restructuring 2.0, are rated in the sub-investment grade rating category, the report said.
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, it said.
The agency’s director Nitin Kansal said most of the companies that have opted for, or are contemplating, restructuring 2.0 belong to the low-to-medium resilience 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,” he added.
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 said.