In a recent letter to Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan on behalf of steel companies, the Indian Chamber of Commerce (ICC) has urged the government to consider setting up an institution like the Power Finance Corporation to take over loans extended by banks to the steel industry and set up a separate fund to infuse equity capital in steel companies.
Currently, banks have to make a provision of 5 per cent for restructured loans. Banks have extended loans to the tune of ₹1.96 lakh crore to steel companies, which have been struggling with slowing domestic demand and surging imports.
External factors blamed The letter notes that during the difficult economic climate between 1999 and 2002, “the Government of India had given a special package for steel companies, and even during the 2008 Lehman crisis, the RBI had allowed a special dispensation” to the industry.
The Chamber said that the current problems besetting the industry are the result of factors beyond the control of promoters and banks.
The China effect These include oversupply of cheap steel from China and Russia following the depreciation of their currencies and a global crash in steel prices.
Steel-makers have also suffered due to government policies, Supreme Court interventions in mining, and the failure of State governments to fulfil commitments on mine allotment, it said.
This has resulted in promoters, lenders and public shareholders of steel firms suffering huge losses, said the ICC letter.
After the government promulgated the Mines and Minerals Development Regulation (Amendment) Ordinance, the iron ore scenario was expected to improve, but prices need to correct further in view of the sharp fall in international iron ore and steel prices, it said. In a bid to protect the steel industry, the Directorate-General of Safeguards on Wednesday recommended a 20 per cent safeguard duty for a period of 200 days on hot rolled coil. The Finance Ministry will shortly decide on the quantum of duty.
Stressed industry The RBI, in its recent Financial Stability Report, said five of the top 10 private steel companies are under severe stress.
Listing the woes of the industry, the RBI said steel companies’ expansion projects were delayed due to problems with land acquisition and environmental clearances, among other factors. This apart, it said, the industry faces challenges in accessing capital, a shortage of iron ore, slow mechanisation of mines, lower capacity utilisation of coal washeries, dependence on imported coking coal, and volatility in the currency market.
China and Brazil continue to dump steel in India due to low Customs duty on stainless steel while exports from India have fallen substantially due to subdued demand and the levy of 50-55 per cent anti-dumping duty by the US on Indian SAW pipes, the report said.
Depressed global steel prices have taken a toll on Indian steel companies on the pricing front in the domestic market, leading to large-scale imports, it added.
In a recent interview to BusinessLine , Seshagiri Rao, Joint MD, JSW Steel, said that with expectations of a fall in prices, customers are cautious and postponing fresh orders to avoid holding high-cost inventory.