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Steel ministry seeks easier loans for stressed projects

Calls for enhanced repayment period, re-financing of ECBs.

Written by Priyadarshi Siddhanta | Allahabad/ New Delhi, New Delhi | Published: December 9, 2014 1:52:22 am

Seeking relief for the sector, the steel ministry has asked the Reserve Bank of India (RBI) to allow a longer re-payment period of 25 years for loans of financially stressed projects. It has also urged the RBI to direct banks to re-finance external commercial borrowings (ECBs) taken by the companies.

The government is concerned that enhancing the crude steel output to 300 million tonnes by 2025 may not be possible as the sluggish market and slender margins dissuade steel producers from taking up capacity expansions. The ministry said that RBI should allow existing steel projects to enjoy a flexible structuring of long-term project loans as in the case of upcoming projects.

New projects enjoy an amortisation period of up to 25 years with a period of re-financing by existing or new bankers every five years. “Owing to the problems faced by the steel industry, a similar scheme should be allowed for the existing projects too,” steel secretary Rakesh Singh told RBI Governor Raghuram Rajan in a letter on November 26.

Since some enterprises have raised low-cost ECBs, the same should be permitted to be re-financed or re-scheduled by the RBI “under the automatic route without the asset being classified as restructured assets,” the secretary said in his letter also marked to secretary, department of economic affairs, finance ministry Rajiv Mehrishi and chairman of State Bank of India Arundhati Bhattacharya. He further argued that banks should be encouraged to participate in re-financing of ECBs.

The scheduled commercial banks already have an exposure of close to Rs 2.65 lakh crore to the steel sector, a senior steel ministry official said citing RBI data. About 120 MoUs signed by the steel companies with various state governments envisage investments of nearly Rs 6,00,000 crore for greenfield projects, he added. Singh also prescribed that 100 per cent re-financing of projects for iron and steel sector should be allowed for companies without any requirement of new lenders. Also conversion of interest burden up to March 2016 into the term loans without impacting the asset classification to improve cash flows would also be necessary.

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