Mumbai: Bankers expect restructuring requests from corporates to drop drastically because of the extension of the ‘emergency credit line guarantee scheme'’ which enables banks to give more money to stressed companies.
The RBI on Saturday clarified that to be eligible for restructuring, a borrower has to merely submit a request to the lending institution before the December 31 deadline. It added that there is no need to finalise a resolution plan before the deadline. However, banks say that many large corporates may decide not to restructure despite this leeway.
Under the scheme, corporates can get a top-up loan up to a fifth of their dues, which would be guaranteed by the government. The additional loan can be repaid in five years, including a one-year moratorium on principal repayment. This is enough to meet their fund requirements, which includes what they need for repaying dues. The scheme, originally meant for small businesses, was amended on November 26 to have the turnover limit removed and its duration extended till March 31.
Finance minister Nirmala Sitharaman on Friday reviewed the disbursements under the scheme. Banks have informed that additional credit of Rs 2.1 lakh crore has been sanctioned to 80.9 lakh borrowers, while Rs 1.6 lakh crore has been disbursed to 40.5 lakh borrowers. This indicates that banks have enough headroom to double the existing loans under the scheme. The finance ministry has also indicated that it is willing to increase the limits.
Crisil has estimated cash-flow hit to companies that it rates to be in the regions of 17%. This translates to an additional funding requirement of Rs 11,000 crore. “Borrowing under the ECLGS 2.0 scheme can provide additional liquidity equal to 3.5 times the cash-flow contraction for the sample set. This will help them overcome temporary liquidity challenges. Also, the one-year moratorium available under the scheme will provide further room for companies to stabilise their cash flows,” said Subodh Rai, senior director, Crisil Ratings.
According to Crisil, the scheme will particularly benefit companies in low-resilience sectors such as hotels, gems and jewellery, and travel as their accruals are expected to fall sharper at 23% this fiscal. For these sectors, the additional liquidity afforded by the scheme will be much higher at almost 10 times of cash flow decline.
The fact that various schemes have improved the liquidity position of businesses is reflected in their improved servicing of debt. For instance, NBFCs have repaid Rs 28,644 crore worth loans in the first seven months of the fiscal by raising longer-term funds through debt instruments under government schemes.
Source:-timesofindia.indiatimes.com