As many as 99% of companies (excluding MSMEs¹) rated by CRISIL are unlikely to opt for the Reserve Bank of India’s (RBI’s) one-time-debt-restructuring (OTDR), a preliminary analysis of 3,523 such non-MSME companies indicates.

The RBI had, on August 6, 2020, announced the scheme as a relief measure for non-MSME corporate borrowers having an aggregate exposure of greater than Rs 25 crore and were under stress due to the Covid-19 pandemic.

But of the CRISIL sample, only ~1% indicated that they would apply for OTDR. This is despite two-thirds of the rated entities² being eligible based on the parameters proposed by the K V Kamath Committee set up by the RBI.

Says Subodh Rai, Senior Director, CRISIL Ratings, “Improving business sentiment on account of increased economic activity over the past couple of months, and expectation of a sharp recovery next fiscal are persuading borrowers to skip OTDR. Another deterrent is the impact on the borrower’s long-term credit history – accounts of those opting for OTDR would be classified as restructured advances by lenders, which could impact their ability to raise debt in future.”

Additionally, for ~44% of CRISIL-rated corporates, more than three-fourth of their debt comprises short term working capital facilities (see chart in annexure). In these cases, availing of OTDR would have negligible benefits, as the resolution plans under this scheme are focussed on deferring principal repayment of long-term debt.

Such borrowers, instead of opting for debt recast, may prefer to seek additional working capital financing as announced by the RBI under its Covid-19 regulatory package.

Early into the lockdown, 968 companies, or ~27% of the sample set, had opted for the moratorium allowed by the RBI. As much as 98% of these are not seeking an OTDR (see chart in annexure) for reasons mentioned earlier.

Says Sameer Charania, Director, CRISIL Ratings, “The recently announced Emergency Credit Line Guarantee Scheme (ECLGS) for the health care sector and 26 other stressed sectors, which allows companies to borrow up to 20% of their outstanding dues, will further dissuade borrowers -- especially those facing temporary liquidity issues -- from opting for debt recast. However, companies that belong to highly impacted sectors such as hotels, retail, real estate, and textiles would still prefer OTDR given their longer business-recovery timelines.”

That said, these are early days and greater clarity will emerge as we move closer to the regulatory deadline of December 31, 2020, set by the RBI for invoking debt restructuring plans. The number of companies seeking OTDR may increase if sentiment around recovery dampens or Covid-19 afflictions keep increasing, leading to fresh curbs on economic activity.

¹ MSMEs refers to Micro, Small and Medium Enterprises having borrowing exposure of less than Rs 25cr defined in RBI Circular:Resolution Framework for COVID-19-related Stress, dated August 6, 2020
² Refer to CRISIL release titled, Two-thirds of CRISIL-rated cos eligible for debt recast, dated September 10, 2020