Almost two-third of Crisil-rated mid-sized companies will be eligible for restructuring under the resolution framework 2.0 announced by the Reserve Bank of India (RBI). This resolution is specifically for contact-intensive sectors to alleviate liquidity challenges faced by companies in these sectors.

The apex bank announced a number of measures aimed at mitigating the pandemic’s impact, raising the aggregate debt threshold for struggling businesses to Rs 500 million from Rs 250 million and provided an on-tap liquidity window of Rs 150 billion to companies in the contact-intensive sectors.

Crisil rates about 6,800 mid-sized companies excluding financial sector entities. Out of these, 4,700 are small and medium enterprises (SMEs), having bank loan exposure of up to Rs 500 million, and are standard accounts as on March 31, 2021. These companies are eligible to avail of the restructuring.

According to Subodh Rai, Chief Ratings Officer, Crisil Ratings Ltd, RBI’s relaxation in overall bank exposure threshold is timely, as it increases the coverage of stressed companies that typically have weaker credit profiles. Three out of four companies eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks. Headed that, rescheduling of loan repayments under the restructuring 2.0 window will provide interim relief to these companies against such liquidity shocks.

Liquidity window for contact-intensive sectors such as hospitality, travel and tourism, and aviation ancillary services, which have borne the brunt of the second wave of the pandemic, is timely.