Steel lobby seeks changes to stressed assets scheme

KOLKATA: The Indian Chamber of Commerce, which represents some of the debt-laden steel firms based in the eastern region, has urged the Reserve Bank of India ( RBI) governor to consider amending the Scheme for Sustainable Structuring of Stressed Assets (S4A) to cover cases where sustainable debt is below 50% and to set up sector-specific oversight committees for banks to restructure loans for companies not under S4A.

In a letter to RBI, ICC director-general Rajiv Singh also suggested that a strict time frame under the Insolvency and Bankruptcy Code ( IBC) should not result in liquidation of good assets.

The letter said the S4A would have been effective had it been introduced in 2010. “However, with a ballooning of debt by over three times between 2011 and 2017, interest costs of loan facilities have been much higher than EBIDTA margins," it said.

Lenders have been deducting interest and installment from repayment from working capital to keep the account standard, resulting in depletion of working capital. Thus, the debt is now at a level much beyond the hard cost of the project. Hence, the threshold of 50% needs to be reduced or removed, Singh said in the letter.

The chamber suggested that the steel sector's specific oversight committee could facilitate decision-making since it felt debt restructuring is not happening due to fear of investigation authorities.

In cases where 100% provisioning is done, the letter said, banks need to take steps for debt restructuring with existing promoters who may bring investors with moratorium of up to two years and extended repayment tenor under the so-called 525 scheme as per cash flows even if it is not coming under S4A circular, by restructuring the loan over economic life of the asset.