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One-Time Loan Restructuring Allowed By RBI To Help Ease Liquidity Pressure On Companies: CRISIL

Staff
·2-min read

One-time restructuring of loans of corporates allowed by RBI for those facing stress due to coronavirus-induced disruptions is likely to ease liquidity pressure for companies, according to CRISIL.

On Thursday, after the Monetary Policy Committee meeting, the Reserve Bank of India (RBI) announced that banks would be permitted to go for a one-time restructuring of loans that are facing stress due to the COVID-19 crisis so as to mitigate risks of their financial stability.

"The decision of RBI to enable lenders to permit a one-time restructuring of loans will ease the liquidity pressure on companies amid the COVID-19 pandemic," said CRISIL in a report.

The rating agency said that several corporates are likely to explore the opportunity to restructure their loans in order to conserve liquidity, especially given the continued weakness in demand amid an economic recession.

The restructuring window will be open only for companies that are under stress due to the pandemic and that were classified as standard, but were not in default for more than 30 days with any lending institution as on 1 March 2020.

The rating agency said 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.

In its normal course of rating reviews, it will also continue to factor in any structural deterioration in the credit risk profiles of its rated companies amid prolonged business-side pressures, or such other reasons, it said. 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, the revised debt repayment terms after restructuring will also play a crucial role.

Given that the moratorium announced by the RBI is ending on 31 August, and the cash flows across a vast majority of rated entities are taking time to normalise, timely support from the lenders in terms of approving restructuring plans quickly will be critical to avoid sharp credit cliffs, the report said.

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