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Tamal Bandyopadhyay
Mumbai, Oct 16: The State Bank of India has decided to pare its exposure to the beleaguered steel sector by two percentage points before the end of the current fiscal. The largest commerical bank in the country, which accounts for 33 per cent of the banking sector's exposure to the steel industry, has put on hold all fresh loans to the industry.
The decision to cut the exposure level follows an industry-risk assessment study conducted by the bank's deputy managing director and chief credit officer V Janakiraman. As on March 31, 1998, the bank's exposure to the steel industry was pegged at Rs 5,200 crore of the total industry exposure of Rs 45,000 crore. "We are slasing it by about Rs 1,000 crore over the next few months as the sector is going through a bad patch. We expect a slow recovery as demand will pick up only after infrastructure projects see the light of the day," sources in SBI said.
"We account for about 27-28 per cent of the total banking industry's outstandings to any sector. Our outstandingsto the steel industry are at least 4 per cent above this level. We will bring it down before the end of the financial year," a senior State Bank executive said. The bank's major clients in the sector include Steel Authority of India, Tata Iron & Steel Company and Essar Steel.
According to insiders, the bank has divided the steel sector into nine sub-segments. Of these, it may take fresh exposure in only one sub-segment, maintain current level of outstandings in two sub-segments, and cut total outstandings of the balance.
The bank's outlook to integrated steel plants, mini steel plants, hot-rolled coiled mills, cold-rolled mills, long products and pipes and tubes is negative. The two sub-segments in which it has decided to maintain the current exposure level are alloys and casting & forgings. The bank is bullish about sponge-iron projects--the only segment in which it may take fresh exposure.
The bank will not join the issue with financial institions as banks' income recognition and asset classificationnorms are different from that of institutions, sources said. "We will go by our own assessment. The question of joining hands with institutions or other banks does not arise," the executive said.
Industrial Development Bank of India chairman GP Gupta had recently said that banks should continue to advance term loans to the steel sector and ensure the flow of working-capital loans. "We will discuss the issue with bankers. And both domestic as well as foreign banks should continue to support the industry," Gupta had said last month after a three-hour inter-institutional meeting held to discuss problems in the steel industry.
Financial institutions are insisting that promoters of steel companies bear at least 20 per cent of the cost overrun as a pre-condition to fresh exposure in the steel sector. They are also planning to ask promoters to pledge their holdings as a collateral to draw fresh loans.
Besides, institutions have also decided to carry out a fresh viability study of steel projects. They areinsisting that banks continue to meet the working-capital requirements of projects, while institutions draw up a plan to pump in fresh funds into the industry. Chiefs of institutions are slated to meet by the end of this month to take a final view on the steel sector.
Institutional exposure in the private-sector steel industry is estimated to be over Rs 20,000 crore.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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