Govt weighs options to further ease repayments of steel sector

The government is considering whether to ease the repayment mechanism further for cash- starved steel companies which are facing the crunch due to persistent slowdown.

"Many steel companies have approached for further easing of repayment mechanism. We are going through their request. It is at a very preliminary stage," said a source.

Earlier this month, RBI announced Scheme for Sustainable Structuring of Stressed Assets (S4A) that envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.

The gross Non Performing Assets (NPAs) of public sector banks (PSBs) increased from 5.43 percent as of March 2015 to 7.30 percent last December -- that is, from Rs 2,67,065 lakh crore, to Rs 3,61,731 lakh crore.

Steel sector is one of the highest contributors to the stressed assets of the banks which have total exposure of about Rs 3 lakh crore to the sector alone.

If the proposal gets a headway, it would provide some respite to stressed companies such as JSPL and Essar Steel, among others, who are currently in dialogue with banks for loan recast. Steel companies are facing pressure from the lenders to ensure that loan repayment is not delayed.

As per the latest Reserve Bank's Financial Stability Report, macro-stress test for sectoral credit risk revealed that in a severe stress scenario, among the select seven sectors, engineering, which had the highest Gross NPA ratio at 8.5 percent as of September 2015.

It could see their gross NPA ratio moving up to 14.5 percent by March 2017, followed by iron & steel (from 8.4 percent to 11.5 percent) and cement (from 6.4 percent to 11.2 percent), it had said.