With nearly half of banks’ gross advances of over R3.1 lakh crore to the steel industry under stress and three-fourths of these already classified as non-performing assets (NPAs), domestic steelmakers have approached the government seeking a relief package, reports Surya Sarathi Ray in New Delhi. They want the Reserve Bank of India to make the S4A and 5/25 schemes more flexible to improve their debt-servicing ability. The steel ministry, sources said, has endorsed the proposals and discussed it with the finance ministry.
Bhushan Steel, Essar Steel, Electrosteel Steels, Visa Steel and Jai Balaji Industries are among the companies contributing to the banks’ stressed assets/NPAs. None of these companies reported a post-tax profit in the first quarter of the current fiscal.
The 5/25 scheme enables banks to extend long-term loans of 20-25 years to match the cash flow of projects, while also refinancing them every five or seven years. Sources said the steel companies have demanded that the eligibility threshold for using the 5/25 window be reduced to outstanding debt of R100 crore. Currently, under the 5/25 scheme, projects where the aggregate exposure of banks or NBFCs to the project company exceeds R500 are eligible for 5/25 benefit. Most of the debt with secondary steelmakers individually is below R500 crore.
Steelmakers have also asked for amending the S4A scheme to allow for extension of working capital loans if the companies have not defaulted on interest payment and conversion of overdue working capital loans into working capital term loans, restructured in line with other term loans. The companies also want a moratorium of three years on interest payments and repayments so that operations could be ramped up. The S4A scheme defines sustainable debt levels for stressed borrowers and allows for bifurcation of outstanding debt into sustainable debt and equity/quasi-equity instruments. The idea is to provide upside to lenders when the borrower turns around. The steel companies have demanded the criterion for sustainable debt be changed to 30% or 50% of the liabilities as on date.
State Bank of India has the highest exposure to the steel sector at Rs 1,34,352 crore as on March 31, 2016, followed by Punjab National Bank at R26,665 crore, ICICI Bank at R25,654 crore and Central Bank of India at R8,323 crore.
Sensing that it would be difficult for the steel industry to raise its Ebitda to interest expense ratio to more than one now to be in a position to service debts, the steel ministry thinks some measures like rationalisation of taxes, lowering power and freight charges and hiving off non-core assets should be taken to raise Ebitda and lower interest rates.