Steel and now synthetic fibres are reportedly some of the sectors where the FIs have grave misgivings. All commodity producers are passing through a downward phase of their business cycles, and the trough which will be exceptionally deep if a worldwide recession sets in.

But it would be strange indeed if banks and FIs were to advance credit to cyclical industries only during the boom phase of the cycle and withdraw support when it is most needed.

Apart from being unfair to their corporate clients, such a policy would hurt the banks themselves, since lack of funds to half-completed projects will mean millions in terms of bad debts for the banks and FIs. Instead of looking merely at the sectors affected by the downswing, it would be far better if the FIs looked at their non-performing assets regardless of sector.

An NPA is an NPA, no matter whether it is in thesteel, fibre or automobile industry. And it is not only the cyclical industries which have NPAs. Given the uncompetitive nature of large parts of Indian industry, NPAs are bound to crop up in all areas. At the same time, a short-term outlook will not be helpful. What is needed, epecially in the case of cyclical industries, is an assessment of their profitability over the cycle.

This would mean that FIs will have to take a longer view. At the same time FIs must be ruthless in cutting off credit to companies which they feel will not survive. Given the time-consuming nature of recovery proceedings, the best course for FIs in such situations would be to pro-actively arrange mergers and acquisitions. Active involvement in industry restructuring by the FIs will help both corporates and themselves.