Two-thirds of mid-sized companies eligible for restructuring 2.0 post RBI’s liquidity measures: Crisil

Earlier based on the aggregate debt threshold of Rs 25 crore, only half of the Crisil-rated mid-sized firms were eligible.

Nearly two-thirds of mid-sized firms rated by credit rating agency Crisil are now eligible for debt restructuring following an increase in the maximum aggregate exposure threshold from Rs 25 crore to Rs 50 crore by the Reserve Bank of India on Friday for Covid-hit MSMEs, small businesses, and individual loans under Resolution Framework 2.0. Crisil said it rates around 6,800 mid-sized companies (excluding financial sector entities), of which about 4,700 are small and medium enterprises (SMEs). These SMEs have bank loan exposure of up to Rs 50 crore and are standard accounts as of March 31, 2021, making them eligible for restructuring.

Earlier based on the aggregate debt threshold of Rs 25 crore, only half of the Crisil-rated mid-sized firms were eligible. “The RBI’s relaxation in overall bank exposure threshold is timely, as it now increases the coverage of stressed companies that typically have weaker credit profiles. Three out of four companies eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks. Rescheduling of loan repayments under the restructuring 2.0 window will provide interim relief to these companies against such liquidity shocks,” said Subodh Rai, Chief Ratings Officer, CRISIL Ratings Ltd in a statement.

The agency added that enterprises in contact-intensive sectors are reeling under a demand shock with the current quarter estimated to see a contraction of 30-50 per cent sequentially. However, such enterprises will get a huge boost if a large part of the Rs 15,000 crore amount is disbursed by banks. The RBI had announced separate liquidity support of Rs 15,000 crore on Friday with tenure up to three years for contact-intensive sectors such as hospitality and ancillary services along with beauty and personal care segments till March 31, 2022.

“However, there is a possibility that only large existing borrowers in contact-intensive sectors actually benefit from this on-tap liquidity window as banks may have greater comfort with them. In the current environment, it is possible that a number of banks could be risk-averse and the benefit of on-tap liquidity facility may not, therefore, reach the smaller and lower-rated companies in these sectors fully,” said Crisil. More clarity on the support by banks would surface once banks come out with their updated policies post the RBI announcement. The central bank had also offered a Rs 16,000-crore of special liquidity support to SIDBI for on-lending or refinancing for up to one year for MSMEs particularly in credit-deficient and aspirational districts.