Essar Steel had proposed that IDBI clear $104 million of additional assistance to redeem its outstanding floating rate notes (FRN).

At the same time, the institution has suggested that the Ruias should divest stake from its other group companies-for instance, Sterling Cellular-as other divestment plans to raise funds have yet to fructify.

Prashant Ruia, director of Essar Steel, said: "We are ready to meet every condition that IDBI has laid down and we are confident of redeeming the FRNs." However, he did not give any time-frame for the redemption.

"Eight months have lapsed since we defaulted (in redeeming the FRNs) and we are hopeful of clearing it over the next few days," he added.

The IDBI stand came on the last day by which the Essar group flaghsip was to pay up the amount-around Rs 485 crore in rupee terms.

A senior IDBI official told The Financial Express: "We are still prepared to finance the repayment provided the company can assure us about the viability of the project, and that it can cut down on the extent of losses."

IDBI has now asked the Ruias to get out of its telecom business-the group is the cellular operator in Delhi-in a bid to raise funds.

"None of Essar Steel's fund raising moves have materialised. They can generate a large amount by selling their 51 per cent stake in Sterling Cellular," the official said.

He added that Sterling Cellular has around Rs 140 crore of oustanding interest liability with IDBI so far, and Essar Steel another Rs 30 crore, which the institution now wants the group to pay up before any fresh loan is disbursed to the group.

An IDBI director, on condition of anonymity, told The Financial Express: "The board has decided that no fresh funds will be disbursed to the Ruias till they pay up the entire interest amount on which they have defaulted. Once they do it, we will be ready to consider giving fresh assistance."

"While the Marathon deal has been delayed, even Stemcor, which was to take a 51 per cent stake in Hy-Grade Pellets has paid up only Rs 22 crore out of their total commitment of Rs 184 crore."

In a press release, Essar said: "The company has already deposited the interest component payable to the noteholders with Bank of America in an escrow account." It has also said that steel prices will strengthen in the coming months and this will improve the fortunes of the flagship.

In the first nine months of the current fiscal, Essar Steel's net loss has shot up to Rs 395 crore against Rs 226 crore in the same period last year. In 1998-99, the company had posted a net loss of Rs 495 crore.

The group's bid to sell its 100 per cent stake in Essar Power to Marathon of the US has yet to fructify. The deal would have generated around Rs 720 crore for the Ruias.

Essar Teleholdings hold 51 per cent stake in Sterling Cellular, while Hutchinson Telecommunications, part of the Hutchinson Whampoa conglomerate, has announced its intention to buy a 49 per cent stake in the company from Swisscom, which holds 32 per cent, and C Sivasankaran who holds 17 per cent.