Thanks to the turnaround in the steel industry, banks and financial institutions have increased their interest earnings as their non-performing assets have gone down.

Banks and FIs have also improved the quality of their assets by converting a part of their debt into equity and have even booked profits by selling their equity in steel companies.

A portion of the lenders' debt exposure was recently converted into equity as part of a restructuring of some of the stressed assets.

The collective impact on the bottomline of the financial intermediaries is going to be substantial this year.

However, none of the banks and insitutions with large exposure to the steel industry is willing to quantify the gain at this point.

"A large part of our steel portfolio has been restructured. Some of the companies did not require restructuring, while a few others will be restructured over a period of time. Most of the loans have now become performing. Companies have started paying back loans and interest to institutions and banks," said Industrial Development Bank of India executive director A K Doda.

ICICI Bank, which had made extra provisions earlier for sticky steel assets, has been able to write back some of its provisioning after the corporate debt restructuring cell recast the debt.

"The problem with three big steel companies is that they had too much of debt contracted at high interest rates. The CDR helped in bringing down the debt of these companies and there was also a reduction in interest rates," a senior bank official.

IDBI had an exposure of Rs 9,104.9 crore (Rs 91.049 billion) to the steel industry as on March 31, 2003 against Rs 7,955.8 crore (Rs 79.558 billion) the year before. Its NPAs in the sector were Rs 1,393.3 crore (Rs 13.933 billion).

ICICI Bank's exposure was Rs 8,042 crore (Rs 80.42 billion) at the end of March 2003, s against Rs 8,934 crore (Rs 89.34 billion) at the end of the previous year, while its NPAs were Rs 430 crore (Rs 4.30 billion).

IFCI's exposure to the steel industry in March 2003 was Rs 4,362 crore (Rs 43.62 billion). The State Bank of India's exposure was over Rs 5,000 crore (Rs 50 billion).

The total exposure of banks and FIs in the three major steel companies - Essar Steel, Jindal Vijaynagar Steel and Ispat Industries - restructured earlier this year was Rs 20,000 crore (Rs 200 billion).

ICICI Bank's exposure to these companies was to the tune of Rs 4,000 crore (Rs 40 billion), while that of IDBI was around Rs 3,500 crore (Rs 35 billion).

Banks and FIs have also restructured loans of SJK Steel, Mukund and a few others.

The perception about some of the smaller companies like Mid-East and Malvika Steel is changing and there are takers for these companies now, institutional sources said.

In other words, banks and institutions can now think in terms of changing the management of sick companies, which they could not do earlier.

"The smaller steel companies are also turning around. This will help in adding to the bottomline of the institutions and banks through lower non- performing assets and higher profitability," IDBI's Doda said.

"The industry now can take care of itself. We will give it a helping hand if there is any need for it. The prices of steel which had gone down up to $180 per tonne are now ruling at around $285. However, companies are not talking of any capacity expansion. This may happen only after one or two years," he added.

Over 24 per cent of IFCI Ltd's funds are locked in the steel industry. At Rs 4,362 crore, this is IFCI's largest exposure to any single sector.

The bulk of its exposure is in the form of loans (Rs 3,659.7 crore (Rs 36.597 billion) while its equity holding accounts for Rs 318.8 crore (Rs 3.188 billion), debentures Rs 77.8 crore (Rs 778 million), leasing Rs 2.65 crore (Rs 26.5 million) and guarantees Rs 303.79 crore (Rs 3.037 billion).

IFCI is optimistic that, with the improvement in capacity utilisation and increase in steel prices with rising demand, "the pressure on NPAs will ease in the coming year."

IFCI said that the relatively high exposure to the steel sector is largely on account of a large number of projects under implementation. The total outstanding assistance provided to industry by IFCI in 2002-2003 stood at Rs 18,786 crore (Rs 187.86 billion).

Industry sources said loans to the bigger steel companies were treated as standard assets even though banks and FIs were not receiving interest on some of these loans.

These companies have now started paying interest which will benefit both the topline and bottomline of the institutions and banks.

The unpaid interest of some of the big steel companies have been now converted into zero-coupon bonds which will be paid over the next 12 years.

The total amount of IDBI's restructured loans and debentures was Rs 10,346.51 crore (Rs 103.465 billion); the figure for ICICI Bank was Rs 8,943.17 crore (Rs 89.431 billion) as at the end of March 31, 2003.

A significant portion of these restructured assets belongs to the steel sector.

State Bank of India recently sent a notice to Bellary Steel under the Securitisation Act. Banks and FIs had an initial exposure of over Rs 750 crore (Rs 7.50 billion) to the company which has gone up substantially because of the non-payment of interest.