The IDBI board also decided to capitalise Rs 308 crore of interests due from some of the companies, increasing its total exposure to steel projects by Rs 1,080 crore. The additional funds come with all the tough conditions recommended by an IDBI sub-committee a week ago, along with the new riders.

The board, which conferred with the three-member sub-panel on Tuesday morning, approved reschedulement of loans for the hot-strip mills of Essar Steel, Ispat Industries and Jindal Vijayanagar Steels. It also granted fresh loans to the pig-iron plant of Ispat Metallics and the long-products plants of Usha Ispat and SJK Steel Corporation.

The board also considered Essar Steel's request for more funds for Essar Minerals, but deferred adecision on the project. The plea, said IDBI chairman GP Gupta, would be examined afresh by an expert committee.

Essar Steel plans to spin off its iron-ore pelletisation and beneficiation plant at Visakhapatnam, along with a slurry pipeline connecting the unit to the iron ore mines at Bailadila, into a separate company, called Essar Minerals.

Gupta said an expert panel would be set up to "assess the profitability and viability of the project" and examine the need for a strategic partner in the venture.

The financial institution also sanctioned a Rs 95-crore term loan to Nagarjuna Fertilisers and Mayaspin Textiles on Tuesday.

The institution has granted addtional funds of Rs 328 crore to Ispat Industries, including interest overdue on its existing loans of Rs 894 crore. The company's Rs 4,845-crore HR-coils project has suffered a cost overrun of Rs 1,205 crore.

Ispat Metallics's request for an additional loan of Rs 89 crore (including interest overdue on Rs 438 crore of existing loans) was alsogranted. The company's Rs 1,440-crore pig-iron plant has suffered a cost overrun of Rs 400 crore.

The IDBI also granted Jindal Vijaynagar Steel's request for Rs 151 crore of additional loans. The company has overshot the cost estimates of its Rs 4,968-crore HR-coils project by Rs 247 crore.

Usha Ispat has been granted Rs 316 crore of additional loans to tide over the Rs 565-crore cost overrun at its Rs 1,425 crore pig-iron and long-products plant. The company's existing borrowings from the IDBI stand at Rs 368 crore.

SJK Steel Corporation has been granted Rs 104 crore of fresh funds. The company's Rs 636-crore long-products project has overshot cost estimates by Rs 180 crore.

IDBI has granted Essar Steel's request for Rs 92 crore of additional loans to tide over the Rs 811-crore cost overrun at its Rs 3,933 crore hot-strip mill. The company is committed to pay the interests due on its existing loan of Rs 492 crore from the IDBI.

Promoters will have to bring in a third of the additional fundsrequired to complete the projects. They will also have to pledge their shareholdings with the IDBI to be able to qualify for the additional loans.

The IDBI loans come with other tough strings attached, like an option to convert 100 per cent of the additional loans into equity at par. Gupta pointed out that for the first time, the financial institution was imposing a right to bring about a change in the management of a company.

The IDBI would insist on reconstituting company boards where ever necessary, for instance, and retain the right to appoint its nominees, along with "experts and foreign consultants." Gupta said the managements of the companies would be constantly under scrunity.

The companies will also have to maintain trust and retention accounts, appoint lenders' engineers and concurrent auditors, rotate auditors and improve their levels of corporate governance. The borrowers' projects would also be subject to a monthly monitoring by the financial institutions.

IDBI is keen that funds divertedfrom steel to telecom or power ventures be brought back at once. "The fresh loans would only be disbursed after the diverted funds are brought back," the IDBI chief told newspersons after the board meeting.

He admitted though, that the total diversion of funds lent for steel projects to other ventures was less than 10 per cent of the Rs 17,000-crore invested in new steel-making capacities. "We have told them to get out of some of their businesses, to bring back the money," he said, without naming names.

Essar Steel is suspected to have diverted funds from its steel plant to telecom, and Ispat Industries is believed to have transferred loans meant for steel into power generation.

Gupta said the IDBI board had been influenced by the Union budget's focus on infrastructure developing in granting more loans to the recession hit steel industry. The financial institution's total exposure to the industry is Rs 6,000 crore, or nearly 12 per cent of its total asset base, he said.