Debt restructuring to help India Inc to tide over Covid crisis: CEOs

The debt moratorium has helped many companies to conserve cash and re-start operations. Yet, CEOs say it isn't enough as consumer demand has not picked up to pre-Covid levels

The Reserve Bank of India’s plan to allow one-time debt restructuring and setting up an expert committee headed by former banker K V Kamath for corporate and personal loans resolution, will provide much-needed relief to Indian companies once the moratorium on loans ends this month.

A host of Indian companies led by airlines, hotels, travel and tourism, real estate and media are expected to fall into a financial crisis, as their cash flows dried up due to the nationwide lockdown announced by the Indian government to contain the Coronavirus pandemic.

“We want to see immediate action by August end. Debt restructuring is important if the companies need to survive and do not lay off employees,” said the CEO of an airline asking not to be quoted.

RBI governor Shaktikanta Das said today that disruptions caused by Covid-19 have led to increased financial stress for all borrowers. “A large number of firms that otherwise maintain a good track record under existing promoters face the challenge of their debt burden becoming disproportionate, relative to their cash flow generation abilities. This can potentially impact their long-term viability and pose significant financial stability risks if it becomes widespread. Accordingly, it has been decided to provide a window under the June 7 Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures - without change in ownership - as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions,” he said.

Ramesh Nair, CEO and Country Head (India), JLL, said that in response to the cumulative rate cut of 115 bps announced since February 2020, banks have already transmitted 70-90 bps in their home loan portfolio, being the fastest transmission. “Today's measures will continue to play a significant role to tide over the short-term challenges faced by the corporates and will give them a breather to focus on restarting their business operations. However, one-time restructuring of loans would have given the much needed respite to the real estate sector which has been facing headwinds due to the pandemic,” Nair said.

Nair said the real estate sector too is yet to see the full swing impact of measures announced earlier. The sector saw a decline in H1 2020 in residential sales across the top seven cities, while launches remained constrained on the back of bleak economic environment and muted consumer sentiment. However, recovery in the residential market is imminent and its green shoots would first emerge in the affordable and mid segments across top cities in the country. While economic growth is expected to be under pressure, he said.

The MPC committee also changed the weightage of priority sector lending (PSL) in favour of neglected districts and good news for start-ups and renewable energy sector is that these have been brought under PSL.

The crisis in the Indian corporate sector and need for relief can be gauged by the fact that the pace of contraction of industrial production, measured by the index of industrial production (IIP), moderated to negative 34.7 per cent in May from negative 57.6 per cent a month ago, with the easing of lockdowns in different parts of the country, the RBI said today.

All manufacturing sub-sectors, except pharmaceuticals, remained in negative territory. The output of core industries in June contracted for the fourth successive month though with a considerable moderation. The RBI’s business assessment index (BAI) for the first quarter of 2020-21 hit its lowest mark in the survey’s history. The manufacturing PMI remained in contraction, shrinking further to 46 in July from 47.2 in the preceding month.

The RBI had already announced debt moratorium for Indian corporates for six months as soon as the lockdown was announced. This helped many corporates to conserve cash and re-start their operations. Yet, CEOs say it is not enough as consumer demand has not picked up to pre-Covid level and they would need a helping hand.