MUMBAI, FEB 18: The board of Industrial Development Bank of India (IDBI) on Thursday deferred a decision on granting fresh loans to steel companies. The IDBI is expected to take a decision only in the next board meeting in March after the presentation of the Union budget.The FI will set up a special committee comprising a few members from its board to take a final stand on additional funding to the beleagured steel companies. The decision by the special committee will be conveyed to other financial institutions (FI) to evolve a joint strategy for the steel sector. "The issue needs to be examined further in detail by a special committee. We will take a final decision by next month. The issue has dragged on for some time. I expect things to be settled by the newly constituted committee," IDBI chairman GP Gupta said immediately after the board meeting held today.The IDBI board was expected to clear additional loans to Essar and Ispat steel projects, among others. The promoters of these projects will haveto wait till the next IDBI board meeting for fresh loans. Other institutions like ICICI and IFCI are expected to follow the IDBI decision on fresh loans.The IDBI board chose to defer a decision with the Union Budget round the corner. Industry watchers say that given the sensitive nature of the issue, the FIs expect finance minister, Yashwant Sinha, to announce a package of measures in his budget for healing the woes of the steel sector. "The finance minister's budget speech will give the neccessary pointers to the FIs with regard to the steel industry. Though it has been presented that the finance ministry is in favour of bailing out some of the steel companies, Sinha's budget will spell out the stance officially. This will make it easier for the FIs to decide a strategy for steel companies facing cash flow and cost over-run problems,'' sources said.The IDBI board also dwelt on lowering of the prudential norm of limiting exposure to any industry sector to 15 per cent of the total advances portfolio.IDBI's exposure to the steel sector is on the verge of increasing substantially with Rs 2,128 crore expected to be disbursed to 14 new steel projects. The amount is calculated as IDBI's share in the total additional assistance of Rs 7,740 crore required to be extended to the steel projects to enable them to complete the projects.However, the board cleared financial assistance to Videocon's proposed power project in Chennai. The consumer electronics company has plans to set up a 1050 mw project costing over Rs 4000 crore.According to the IDBI chairman, a lot of money has been given to steel projects completed and under implementation. ``It is in our interest to give additional money required by these projects,'' he said. Of the total exposure of Rs 14,120 crore of all financial institutions to the 14 new steel projects, IDBI's share amounts to Rs 4,353 crore.Among the steel projects, Ispat has the maximum exposure in the books of financial institutions with total loans of Rs 4,373 crore. IspatIndustries and Ispat Metallics are asking a bail-out package of Rs 1,500 crore. Essar has sought Rs 2532 crore loan package from institutions.Thanks to fear of turning into non-performing assets (NPAs), the financial institutions led by IDBI have decided to prescribe tough conditions for extending additional loans to steel projects. Among other things, promoters were asked to allow the conversion of the entire term loans into equity if the institutions decided that a project was being poorly managed.In addition, promoters were told that they will have to pledge their shareholdings upto 51 per cent with the institutions. These conditions will enable the institutions to effect changes in management if needed, apart from ensuring sound corporate governance. At the same time, FIs have also decided to reduce its exposure to the steel sector which has not performed well in the recent past. Now, the FIs will shift its focus to sectors like infotech, pharma and agro food processing industries.According toGupta, IDBI's present exposure to steel is at 14 per cent and this would be reduced gradually in the coming years. He was, however, quite optimistic about the future of the cement industry and said he was hopeful of better performance despite current difficulties. Out of the additional funding requirements of 14 large new steel projects amounting to Rs 7,740 crore, IDBI's share amounts to Rs 2,128 crore. IDBI has already advanced Rs 4,353 crore against the total institutional exposure of Rs 14,120 crore.The cumulative project cost of the 14 new steel plants, including Essar Steel, Ispat Industries, Jindal Vijayanagar Steel, Lloyds Steel, Usha Ispat and Malvika Steels, is Rs 24,572 crore, but all these projects have had cost over-runs totalling over Rs 10,100 crore.Even in the case of Essar Steel, which has been completed, the financial institutions will apply the stringent conditions while making disbursements for its pelletisation project. Besides, Essar Steel also required funds to retireinternational borrowings of $ 90 million ($40 million in March/April and $50 million in June).
