With improving business sentiment and ongoing gradual recovery, only one per cent of rated Indian companies have shown interest in one-time debt restructuring (OTDR) scheme, according to rating agency Crisil.
In August 2020, the Reserve Bank of India (RBI) had formulated OTDR scheme for companies under stress due to the Covid-19 pandemic. It had set up a panel headed by former ICICI Bank chairman K V Kamath to suggest norms for OTDR.
The rating agency in a statement said its preliminary analysis of 3,523 such non-MSME companies rated by it indicated as many as 99 per cent of companies (excluding MSMEs) are unlikely to opt for restructuring.
Only about one per cent indicated that they would apply for OTDR. This is despite two-thirds of the rated entities being eligible based on the parameters proposed by Kamath Committee.
Subodh Rai, Senior Director, Crisil Ratings, said, improving business sentiment on account of increased economic activity over the past few 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, he said.
Lenders have to finalise and invoke OTDR for corporates by end of December 2020.
Crisil said that more than three-fourth of debt consists of short-term working capital facilities for 44 per cent of its rated corporates. In these cases, availing OTDR would have negligible benefits, as the resolution plans under this scheme are focused 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.