There are only a few takers for the debt restructuring facility offered by the Reserve Bank of India (RBI) under its Resolution Framework 2.0 amid demand recovery, according to a Crisil Ratings survey of about 4,700 companies rated by it.

Crisil Ratings’ investment grade rated corporates have shown resilience amid the pandemic and hardly anyone is planning to avail restructuring 2.0.

Sub-investment grade

In fact, the survey shows that as much as 95 per cent of those opting for, or are inclined to seek restructuring, belong to the sub-investment grade rating category.

Within the sub-investment grade companies, 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, the credit rating agency said.

Crisil cautioned that 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.

“This could be especially true for the smaller ones that typically experience more stress. Greater clarity will emerge closer to the September 30, 2021, deadline set by the RBI for invoking the restructuring plan,” it said.

Crisil emphasised that these are preliminary readings from the survey, and may not be reflective of the inclination among those not rated by it.

In particular, most of the micro and small enterprises in India are unrated, it added.

Resolution Framework 2.0

The RBI had, on May 5, 2021, announced the Resolution Framework 2.0 for Covid related stressed assets of individuals, small businesses and micro, small and medium enterprises (MSMEs) with aggregate exposure of up to ₹25 crore.

This facility is available provided the aforementioned entities had not availed benefits 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.

Referring to the RBI raising the aggregate debt threshold under Resolution Framework 2.0 to ₹50 crore from ₹25 crore on June 4, 2021, the agency said, “This increase in threshold led to about two-thirds of the Crisil-rated mid-sized companies becoming eligible for the restructuring 2.0 scheme.”

Corporates give restructuring option a miss

Crisil opined that 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.

Subodh Rai, Chief Ratings Officer, Crisil Ratings, said, “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.

“The more localised and less stringent nature of curbs/restrictions during the second wave has meant relatively lower disruption in business activities compared with the first wave. So the muted response is par for the course.”

Nitin Kansal, Director, Crisil Ratings, 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.”

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