The Indian government is likely to come out with a definitive policy whereby government-owned steel companies would operate stressed steel companies acquired by lending commercial banks, a government official said.
The official said that, as per new laws, commercial lending banks have been empowered to initiate bankruptcy proceedings against defaulting private sector steel companies and, once such stressed assets are taken over, the banks would need management know-how to operate the restructured assets and, accordingly, government-owned steel companies would have to step in.
A firm policy to prompt government steel companies to operate the bank-acquired assets of stressed steel companies has been required in view of the fact that previously government-owned steelmaker Steel Authority of India Limited (SAIL) declined a similar arrangement to operate the assets of Monnet Ispat, against which bankruptcy proceedings were initiated, the government official said.
It was pointed out that banks would clearly exercise a first option of selling off stressed steel companies after bankruptcy proceedings as laid down by the Reserve Bank of India (RBI). But in several cases banks might not find a buyer, in which case these assets would have to be operated by government-owned steel companies instead of leaving them idle, the official said.
In the first round of tackling defaulting companies, the RBI last month identified 12 defaulting borrowers of the banking system accounting for 25 percent of total bad loans of domestic commercial banks, which included steel companies like Bhushan Steel Limited, Essar Steel, Bhushan Steel and Power and Monnet Ispat.