Financial institutions (FIs) must play a greater role in the steel industry by solving structural issues than just restructuring loans, said Dr J J Irani, chairman of the Indian Steel Alliance, and B Muthuraman, managing director of Tata Steel, at the International Steel Seminar organised by 'Steel Scenario' today.
Irani said, the steel industry is too fragmented and consolidation must take place. "Discussions are on but it is too premature" he said.
Corroborating Irani's viewpoint, Muthuraman said, it is necessary for the FIs and government to look at fundamental aspects of steel companies and not just restructure loans.
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Industry sources said, FI exposure in the steel sector is to the tune of Rs 15,000 crore.
FI sources said, apart from Tata Steel and SAIL, FIs have huge exposure in other steel companies. "Companies have huge borrowings from the institutions and in some cases shares have also been pledged with them" said sources.
Industry sources pointed out that the consolidation will also result in rationalisation of steel production capacity, which presently is at 35 million tonne. Once, capacity is rationalised, prices will pick up.
The OECD meeting held in Paris on February 7 and 8 arrived at a consensus to cutback production capacity. India happens to be an affiliate member of OECD. Globally, there is an effort to do away with inefficient capacities.
While the crude steel making is still concentrated in the bigger units, the smaller units have catered so far to the local demand. But, apart from the steel making units, the country has about 3,000 rolling mills producing finished long products like bars, rods, structurals and narrow strips.
The draft national steel policy also says that restructuring and consolidation of the industry is one area where the traditional conflicts of interests will have to be buried in favour of widespread co-operation and strategic alliances.
"Although the government may not have any direct role to play in it, the FIs will have a hard task in hand," said the draft.