PMO steps in to resolve steel companies' bad debt woes

With banks reluctant to take any action on the debt recast plans of top steel companies, the Narendra Modi government is stepping in to sort out the issues. 

Banking sources said the project monitoring group of the Prime Minister’s Office, along with the finance ministry, was working on a fresh package for top steel companies and also for the top 40 accounts that were under stress due to various external reasons such as the cancellation of licences. 

Companies such as Essar Steel, Jindal Steel and Power, Electrosteel Steels, Bhushan Steel and Monnet Ispat are in a queue to get a debt recast package from banks. These would be expedited. The total debt of these companies is around Rs 1.5 lakh crore. 

A large number of companies will miss the March-end deadline to restructure their debt, which would then become non-performing assets (NPAs) for banks, as bankers are reluctant to clear the files unless given immunity from future prosecution, according to banking and corporate sources. 

At least 200 such accounts, including steel firms, are in different stages of getting approvals for loan restructuring.

Bankers have refused to clear debt recast proposals after the arrest of top IDBI Bank officials, including its former chairman, in the Kingfisher scam. Bankers are afraid of prosecution at a later date, and are not approving restructuring packages. 

The government is expected to set up more oversight committees (OCs) to monitor loan recast packages, and bankers say they would prefer to approve recast packages once the additional layer is in place.

As of now, there is only one OC that was set up after the RBI came out with the S4A (Scheme for Sustainable Structuring of Stressed Assets) last year. To date, the S4A scheme has been cleared only for Hindustan Construction Company, while GMR Infrastructure is in queue. Most of the corporate debt restructuring packages are from the power, steel, mining, infrastructure and telecom sectors, which lost licences or spectrum following court rulings.

In order to break the impasse, banks have written to the central bank seeking relaxation of debt recast norms, including spreading provisioning of large accounts over eight quarters and not seeking personal guarantees from existing promoters. But the RBI has not given any indications as yet to relax norms. 

The go-slow movement by the banks has impacted corporates which, in turn, are not investing either in expanding capacities or setting up new units in other sectors.  “Corporate investments are as good as dead,” said the head of a large company. “Though the government is keen that the animal spirit of India Inc is unleashed, the banks are reluctant, leading to a stalemate,” he added.

Though there are talks of setting up a “bad bank” that would hold all the bad debts from Indian banks, but there has not been any action on it as yet.