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Most companies that availed loan moratoriums were facing challenges before COVID-19: Crisil
MUMBAI: A majority of the companies that availed of the Reserve Financial institution of India (RBI) moratorium are rated under funding grade and were already grappling with a slowing economic system before the pandemic started.
Crisil analysed over 2,300 non-financial companies from its rated portfolio that availed of the moratorium after categorising them by ranking, sector and measurement.
“Three out of 4 entities that availed of moratorium are rated within the sub-investment grade. Most of them were grappling with a slowing economic system before the pandemic started. The severely curtailed enterprise exercise that adopted within the first quarter of this fiscal had cramped money flows, so the moratorium got here as an enormous reduction,” the ranking company mentioned.
In March the Reserve Financial institution of India had introduced a 3 month moratorium on curiosity cost by companies in addition to people to assist them cope with the financial collapse as a result of Covid 19 induced lockdown. It was additional prolonged in Could and finish right this moment.
Nonetheless, as a unprecedented dispensation banks were requested to restructure loans by both giving debtors extra time to pay or decreasing rates of interest. Banks will begin the restructuring train from September 1.
Crisil mentioned the moratorium offered much-needed liquidity assist to mid-sized sub-investment grade (rated BB+ or decrease) companies. It has additionally prevented a pointy weakening of their credit score profiles. The upper rated companies didn’t have to avail the moratorium.
Just one out of 4 companies that availed of the moratorium is rated within the funding grade (rated BBB- or larger). They took recourse to the moratorium to construct a liquidity cushion for exigencies within the close to time period, Crisil mentioned.
“Each fifth firm in extremely impacted sectors equivalent to gems and jewelry, resort, auto parts, car sellers, energy (energy utilities, unbiased energy producers and vitality merchants), packaging, and capital items and parts availed of the moratorium. However, just one in ten did from less-impacted sectors equivalent to prescription drugs, chemical compounds, FMCG, secondary metal and agriculture. Dimension has additionally been a differentiator with few comparatively larger companies going for it. Within the mid-sized company phase (Rs 300-1,500 crore turnover), the variety of companies availing of the moratorium was greater than thrice these within the Rs 1,500 crore and above turnover vary,” the ranking company mentioned.
Subodh Rai, senior director, Crisil Rankings mentioned companies in sectors impacted essentially the most by the pandemic have been the keenest to avail of the moratorium.
The muted demand outlook in most sectors is prone to hit companies particularly these that have decrease resilience. Taking the RBI’s one time restructuring facility will help companies handle their money flows that, in flip, will present assist to their credit score profiles, Crisil mentioned.