Majority of SMEs qualify for restructuring says Crisil

About 97% or 3400 of the 3500 small and medium enterprises (SMEs) rated by Crisil qualify for the Reserve Bank of India's (RBI) latest restructuring window as they are still standard accounts as of March 2021, the rating agency said.

The RBI has allowed banks to restructure loans to inviduals and SMEs upto an aggregate amount of Rs 25 crore provided these accounts have not been restructured last fiscal and are not classified as NPAs at the end of March 2021.

Last fiscal, a third of these SMEs had cushioned their liquidity by availing of the RBI mandated six month moratorium on bank loans. Later a bounce back in demand helped in recovery which had limited the number of companies that had opted for restructuring under the first restructuring window that ended on March 31 2021.


However, their resilience will be tested this time round as unlike last year they do not have cover of a RBI mandated moratorium this time. This even as these companies are yet to recover from the first wave of the pandemic.
Crisil Ratings also analysed the impact of the proposed restructuring on a sectoral basis, categorising 43 sectors (excluding the financial sector) into three categories – high, moderate and low resilience.

“Companies in low-resilience sectors such as retail, hospitality, auto dealerships, travel and tourism, and residential real estate are likely to be impacted the most by resurgence of the pandemic, and therefore more likely to opt for the restructuring. On the other hand, companies in high-resilience sectors such as chemicals, pharmaceuticals, dairy, information- technology and consumer staples/FMCG may not face any significant liquidity pressures on account of steady consumer demand and will be least likely to go for restructuring,” said Rahul Guha, director, Crisil Ratings.

Companies with relatively weaker credit profiles, and part of low-resilience sectors are expected to benefit more from the scheme.

Four out of five Crisil rated SMEs eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks. However, Crisil said that the impact of pandemic could be contained over the next 2-3 months. Therefore, actual number of companies opting for restructuring could be much lower than that are eligible.

Crisil said it will assess the impact of restructuring 2.0 on its rated credits on a case-to-case basis after factoring in the timeliness and terms of the restructuring of debt, as sanctioned by the respective lenders and regulatory guidelines. "If the impact of the second wave of the pandemic is not contained over the next 2-3 months, more restructuring may be necessitated. This will bear watching," the rating agency said.