With domestic steel companies reaping benefits from government import protection measures and recovery in local prices, commercial lending banks to steel companies are likely to claim a larger share of earnings as repayment of outstanding debts, an official in government owned commercial banks said on Tuesday.
He said that steel companies’ volumes, prices and margins shown improvements over the past six months and commercial lenders will take a concerted stand to claim a larger part of the increased revenues as repayment of debt from local steel companies.
He said that all commercial bank and lenders to steel companies are expected to meet later this month to evolve a common stand on recovery of outstanding debt from steel companies.
Each debtor steel company will be reviewed on a case-to-case basis factoring in impact of higher volumes and earnings, the official said.
But as a common thumb rule the commercial banks will engage debtor steel companies on a basis that while 85 percent of current cash flow is required by them to maintain operations, 15 percent is generally earmarked for servicing debt.
According to the official, the banks will claim that steel companies earmark at least 20 percent of total cash flow for servicing debt with a proportionate reduction in cash flow required to maintain operations.
According to government data, as on June 30, 2016, total bank debt to the steel sector was estimated at $7.92 billion.