MSMEs with 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 restructuring frameworks and were classified as standard accounts as of March 31, 2021.
Covid impact on MSMEs: The number of small and medium enterprises (SMEs) rated by Crisil opting for the restructuring window offered under the Resolution Framework 2.0 by the Reserve Bank of India (RBI) recently could be much lower than that are eligible, the credit rating agency said. “Crisil believes that the impact of the pandemic could be contained over the next 2-3 months. Therefore, the actual number of companies opting for restructuring could be much lower than that are eligible,” it said in a statement. Around 3,500 companies rated by Crisil are SMEs with bank loan exposure of up to Rs 25 crore while around 3,400 of them are standard accounts, which makes them eligible for the restructuring scheme.
Though localised at the moment, disruptions caused by the second wave of the pandemic have the potential to hit smaller businesses, which were yet to fully recover from the blow dealt by the first wave, the agency noted. “Four out of five companies eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks. Restructuring 2.0 could provide interim liquidity relief to these companies to cope with near-term cash-flow mismatches,” said Subodh Rai, Chief Ratings Officer, Crisil Ratings.
The central bank had earlier this week announced measures to mitigate the impact of the pandemic on businesses and individuals, including restructuring window for small businesses. Individuals, small businesses, and MSME borrowers with 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 restructuring frameworks (including Resolution Framework 1.0 dated August 6, 2020), and were classified as standard accounts as on March 31, 2021.
To incentivise credit flow to MSMEs, RBI had also allowed scheduled commercial banks in February this year to deduct credit disbursed to new borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR). Governor Shaktikanta Das had announced an extension of this exemption, which is currently available for exposures up to Rs 25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, till December 31, 2021.”
According to Crisil, a third of its rated SMEs had cushioned their liquidity last fiscal year by availing the loan moratorium. While this relief was supported by a bounce-back in demand, which limited the number of companies opting for restructuring under the Resolution Framework 1.0, the resurgence of the pandemic and absence of any moratorium this time, the resilience of these SMEs will be tested.