India Ratings and Research on Thursday said a third of the mid and emerging corporates (MEC) having turnover of under Rs 750 crore rated by it could be ineligible for restructuring loans despite being "vulnerable".
A weak cash flow recovery and stretched liquidity among such corporates which are rated below BBB can result in significant haircuts for lenders, it warned.
The RBI had last month adopted recommendations of the K V Kamath committee on one-time restructuring. The norms stress on looking at every case separately rather than having a blanket loan recast because of past experiences.
"On an overall basis, 62 per cent of the issuers (47 per cent by total debt) qualify for all the ratios recommended by K V Kamath committee financial guidelines for restructuring based on the FY19 balance sheet...Over one-third.. do not qualify for all ratios," the ratings agency said.
It said the companies not qualifying for restructuring and belonging to the speculative grade, having stretched liquidity even pre-pandemic, are likely to see a deterioration in their credit and liquidity profiles over FY22 and FY23.
It said as per the Kamath committee recommendations, there are 113 companies which are ineligible and 40 per cent of these belong to the highly vulnerable category with stretched liquidity.
Such companies will turn delinquent over the next 6-12 months or would require significant haircuts for lenders, the agency warned.
Negative rating actions are likely to emanate from this bucket of companies, it said, adding half of these entities belong to the speculative grade rating category and sectors such as consumer durables, construction, textiles, building materials, hotels, real estate and sugar.
The remaining 60 per cent of ineligible issuers in the low-to-moderate vulnerability category and having adequate liquidity as of FY19 may not seek restructuring immediately, it said.
If their cash flows recovery is delayed and liquidity profile worsens, lack of access to the restructuring window could impact their solvency over a period of time, it added.
The agency said about 59 per cent of its MEC is under moratorium, of which 58 per cent qualify for the restructuring scheme.
Of the remaining 42 per cent of the issuers which had availed moratorium and thus are not eligible for the scheme, nearly half exhibit a weak-to-modest liquidity profile and belong to sectors such as construction, consumer durables, iron and steel manufacturing and textiles, it said.
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