RBI loan moratorium saved three out of four companies; gave liquidity relief to lower rated firms

With RBI directing the banks to provide liquidity support to mid-sized sub-investment grade companies, many companies have found themselves in a better position now and have also averted a further sharp weakening of their credit profiles. About 75% of the companies that availed moratorium, are sub investment-grade companies, with a CRISIL rating of BB+ or lower. These companies needed support due to coronavirus pandemic, a CRISIL report said on Monday. “While the moratorium ended today, debt restructuring announced by the RBI recently can play a crucial role in supporting the credit profiles of mid-sized companies,” it said. Over 2,300 non-financial companies analyzed by CRISIL needed a moratorium to tide over coronavirus woes such as cash-flow challenges.

Three out of four entities that availed of moratorium are rated in the sub-investment grade and were grappling with a slowing economy even before the pandemic began. Moratorium comes as a big relief to these companies as businesses were curtailed during the first quarter of this fiscal. The same in turn hampered cash flows. “Companies in sectors impacted the most by the pandemic have been the keenest to avail of the moratorium. While every sector has been affected by the dislocations stemming from the pandemic, majority of those with lower resilience have availed of the moratorium,” Subodh Rai, Senior Director, CRISIL Ratings, said. 

Companies in sectors such as gems and jewellery, hotel, auto components, automobile dealers, power (power utilities, independent power producers and energy traders), packaging, and capital goods and components, are among the worst hit. 

Size is also a major differentiator between companies that needed moratorium and the companies that didn’t. Companies in the mid-sized corporate segment, which have a turnover of Rs 300-1,500 crore were thrice more likely to avail moratorium as against those which have a turnover of Rs 1,500 crore and above.