CRISIL expects one-time loan restructuring to ease liquidity pressure on companies
CRISIL in its latest report has stated that Reserve Bank of India’s (RBI) decision to enable lenders to permit a one-time restructuring of loans is likely to ease the liquidity pressure on companies amid the COVID-19 pandemic.
The rating agency observed that several corporates are likely to explore opportunities to restructure their loans in order to conserve liquidity, especially given the continued weakness in demand amid an economic recession. In a major relief to corporate and retail borrowers, RBI has permitted banks to go for a one-time restructuring of loans that are facing stress due to the COVID-19 crisis with a view to mitigate risks to financial stability.
According to the report, the restructuring window will be open only for those companies that are under stress due to the pandemic and also, for those, which were classified as standard but were not in default for more than 30 days with any lending institution as on March 1, 2020. It said that it will factor in the impact of debt restructuring on its rated credits as and when the process is initiated, and its rating action will depend upon the timeliness and terms of the restructuring of debt. The agency will also continue to factor in any structural deterioration in the credit risk profiles of its rated companies amid the prolonged business-side pressures, or such other reasons, in the normal course of the rating reviews.
CRISIL further said that its analysis will take into consideration the rated entity's resilience and its expectations on the pace and extent of normalisation of its cash flows. In addition, it pointed out that the revised debt repayment terms after restructuring will also play a crucial role. Given that the moratorium announced by RBI is ending on August 31, and the cash flows across a vast majority of rated entities are taking time to normalise, it noted that the timely support from the lenders in terms of approving restructuring plans quickly will be critical to avoid sharp credit cliffs.