Almost two-thirds of CRISIL-rated mid-sized¹ companies (standard accounts as on March 31, 2021) have become eligible for the restructuring window offered under the Resolution Framework 2.0 following the relaxation of aggregate debt-eligibility thresholds announced by the Reserve Bank of India (RBI) today, a CRISIL analysis shows.

Further, the on-tap liquidity window for contact-intensive sectors will help alleviate liquidity challenges faced by companies in these sectors.

Among a slew of measures aimed at mitigating the pandemic’s impact, the RBI has raised the aggregate debt threshold for struggling businesses to Rs 50 crore from Rs 25 crore and provided an on-tap liquidity window of Rs 15,000 crore to companies in the contact-intensive sectors.

CRISIL rates about 6,800 mid-sized companies (excluding financial sector entities). Of these ~4,700 are small and medium enterprises (SMEs), having bank loan exposure of up to Rs 50 crore, and are standard accounts as on March 31, 2021, making these eligible to avail of the restructuring (please refer Annexure).

As per the earlier aggregate debt threshold of Rs. 25 crore, only half of the CRISIL-rated mid-sized companies were eligible. But now, with the revised threshold, almost two-thirds have come under the ambit of the restructuring scheme.

Says Subodh Rai, Chief Ratings Officer, CRISIL Ratings Ltd, “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.”

The on-tap liquidity window for contact-intensive sectors such as hospitality, travel and tourism, and aviation ancillary services, which have borne the brunt of the second wave of the pandemic, is timely, too. Companies in these sectors are reeling under a demand shock – with the current quarter estimated to see a contraction of 30-50% sequentially – and will get a huge boost if a large part of the Rs 15,000 crore amount is disbursed by banks.

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.

Further clarity will emerge once the banks come out with their updated policies post the RBI announcement. CRISIL will monitor the impact of the development on its rated credits on a case-to-case basis.

¹ Mid-sized companies – having aggregate bank loan exposure of less than ₹500 crore