Ignoring similar requests from textile and chemical sectors, FIs are working on the rescheduling of loans to steel companies following persistent demand from some business houses and the government. ``The steel industry is going through a crisis on account of the downturn in the economy,'' institutional sources said, pointing to the high FI exposure and the rising NPA (non-performing assets) level in the steel sector for such an exercise.

This is not the first time that institutions are rescheduling the loans of such companies. Unit Trust of India (UTI) had rescheduled one steel company's loan four times in four years. Institutions are planning to restructure the loans of Lloyd Steel, Ispat, Jindal, Usha Ispat,Rajinder Steel and others. UTI had recently restructured the redemption period for non-convertible debentures of Essar Steel from 2001 to 2005.

However, a section of the corporate sector, especially the textiles, is agitated over the policy of institutions to bail out only the steel sector. ``The situation in the textile sector is even worse than steel sector. Hundreds of textile mills are lying closed for want of cash. These institutions have not done much in our case. Their eagerness to work out bail-out packages to steel companies is not understandable,'' said the chief executive of a textile company.

As many as 51 textile mills have downed shutters during the year ended July 1998 following protracted recessionary conditions in the domestic and export markets. With this the number of mills which downed shutters has risen from 206 in July 1997 to 257 by July 1998 "which is the highest closure figure", said Deepak Parikh, the outgoing chairman of the Indian Cotton Mills' Federation (ICMF). ``Even astextile units experienced acute financial stringency, bank personnel continued to perceive textiles as a high-risk industry and not a lending area,'' he said.

It is not only the textile sector, even several cement, petrochemical and telecom companies are desperately looking for funds. Here again, institutions have not favourably considered any `bail-out' which has now become a common phenomenon in the steel sector.

According to the `Report on Development Banking' brought out by the IDBI, textile is second in the list of sectors which have taken FI loans by accounting for Rs 37,434 crore loans as on March 31, 1997. The chemicals and allied products sector tops the list with loans of Rs 49,822 crore.

The union steel secretary A K Basu had gone on record last week saying that FIs should consider rescheduling loan repayment in order to give the upcoming steel plants a longer period for repayments. However, merchant bankers are skeptical about the rescheduling plans of FIs. ``There was a failure in carryingout due diligence and project appraisal especially in terms of demand and production. When there is poor demand, why do you encourage more capacities?'' asked a merchant banker.

As many as 19 new major steel projects -- representing an aggregate capacity of around 13 million tonnes and a total investment commitment of over Rs 25,000 crore -- are coming up in the country. The financial viability of many of these companies are suspect and need further feasibility studies.

Another overseas issue from Essar

MUMBAI: Essar Steel has taken the permission of shareholders at the last annual general meeting to raise funds not exceeding $ 400 million from the international market. The balance sheet of the company says that detailed terms and conditions for the offer will be determined in consultation with lead managers to the issue.

Why should Essar go for another issue? As per the balance sheet, floating rate notes (FRNs) worth Rs 993.25 crore (around $ 250 million) issued earlier are due for redemptionat par in July 1999. These FRNs carry an interest rate of six months' LIBOR plus 2.65 per cent. This means Essar will have to raise a huge amount of nearly Rs 1,000 crore for repayment.