Very few corporates from the mid and emerging segments opted for the Reserve Bank of India's (RBI) one-time debt restructuring following respite from various government schemes such as the Emergency Credit Line Guarantee Scheme (ECLGS) and a faster recovery in demand, according to a report.
In August last year, the RBI had announced a one-time restructuring for personal and corporate borrowers affected by the pandemic-related stress.
India Ratings and Research said only 5 per cent of its rated 450 issuers in the mid and emerging corporates (MEC) space had availed the RBI's financial restructuring facility available till December 31, 2020.
"The lower-than-expected restructuring was on account of the various government measures and faster demand recovery in the domestic market, supported by a marginal pick-up in exports in certain sectors," the agency said in a report.
Issuers having availed restructuring are primarily rated in the 'IND BB' and below rating categories with stretched liquidity. Such issuers belong to the industrial and discretionary segments and operate mainly in sectors such as real estate, and construction and engineering, it said.
The report said the Rs 3-lakh crore ECLGS and the COVID-19 loans provided by banks offered respite to issuers with weak liquidity and increased their ability to withstand the sustained cash flow pressures caused by the COVID-19-led lockdown.
Even though not all issuers had availed the additional funding, the same has flowed down to the entities lower down the value chain. Many banks have also automatically converted the interest due on the working capital loans under moratorium into term loans, thus eliminating the need for the issuers to apply for the restructuring scheme, the report.
Even the revised definition of micro, small and medium enterprises (MSMEs) has enhanced the access of freshly included entities to funding from the financial system, it noted.
According to the agency, the sentiments of the issuers have played a role in them not availing the restructuring scheme.
"The liquidity crunch endured by the issuers in the first half of FY21, backed by the onset of a recovery in the third quarter of FY21, has led to a belief of their increased resilience towards their liabilities," it said.
The opening of offices, factories, retail stores and malls backed by the festive and marriage season demand has led to the issuers witnessing a steady recovery in their credit profiles over October-December 2020, the report said.
It said bankers have remained extremely risk-averse to extend additional lending or alter the lending terms for issuers having weak liquidity, high leverage or where the credit profile is unlikely to improve in the near to medium term.
The report said the relief package offered by banks and festive demand coupled with positive sentiments will partially abate the near-term liquidity headwinds for lower rated mid and emerging corporates.
It, however, expects funding constraints to increase for issuers having stretched liquidity and a weak credit profile over 2021-22 and 2022-23, reducing the financial flexibility for those that have not availed loan restructuring.
Of its rated MEC portfolio, 56 per cent of the issuers primarily belonging to the 'IND BB' and below rated categories depict a stretched liquidity profile. Of these, 74 per cent belong to the discretionary and industrial segments, the agency said.
The agency said it will continue to monitor the credit and liquidity profile of the issuers in the MEC space and could take negative rating actions for issuers having weak liquidity or deteriorated long-term credit profile or a combination of both.