The move has been triggered by the recent Reserve Bank of India stipulation that banks and financial institutions must pare their exposure limit to individual clients to 20 per cent effective from April 2000 from the present level of 25 per cent. The central bank eventually wants to reduce the exposure level to 15 per cent in line with the international practice.

The institutions have been flooded with proposals from corporates, plagued by huge cost and time overruns, to convert some of their loans into some form of equity. Most of these companies have been saddled with a high debt-equity ratio, posing a hurdle for raising any further funds.

The decision to set up the high level committee wastaken at the head of institutions meeting (HIM) held in Mumbai on Wednesday. Institutional sources said the policy framework-to be worked out by the panel-will not be restricted to just the steel sector, but will be applicable to all other sectors as well.

The committee has been given the mandate to arrive at a policy of how to work out such a financial restructuring, and the modalities for conversion of loans into equity, top FI sources said.

The RBI decision to slash the exposure limit of banks and financial institutions to 20 per cent by April next - announced in its mid-term monetary and credit policy- has jeopardised the institutions' plan of rescuing the last-mile projects by sanctioning fresh loans as that would have increased the exposure limit further.

Unlike commercial banks, which have capped their exposure limit to industry houses at 15 per cent, most of the institutions have higher exposures to individual corporates.