With the steel sector showing prospects of improvement in financial health, commercial banks are hopeful of taking a lower haircut on resolution of stressed assets in the sector.

Steel industry, which accounts for a major share of the stressed assets in the books of banks, has been reeling under the pressure of excess capacity and low capacity utilisation.

According to Rajnish Kumar, Managing Director of State Bank of India, the steel sector has been showing signs of improvement. The demand and capacity utilisation is also expected to go up aided by higher government spend.

“In last six months, the scenario in steel sector is looking up, and if the government spends on infrastructure and affordable housing goes up, then there are chances that the sector will see a revival,” said Kumar, while speaking at a banking colloquium organised by CII on Saturday.

The improvement in steel industry scenario could translate into lower haircuts for the bank. “I think haircut will reduce with the revival of steel sector,” he added.

Insolvency, bankruptcy code

The Insolvency and Bankruptcy Code 2016 (IBC) will curb the number of long pending cases substantially, and also encourage foreign investments, apart from promoting entrepreneurship.

According to a CII-Deloitte report, Paradigm Shift in Banking: Future Strategies, which was released on Saturday, IBC provides for resolution of insolvency in a speedier and homebound manner, and also specifies prioritisation of settlement of debts owed by a corporate debtor.

“It [IBC] should encourage foreign investment as well as promote entrepreneurship as businesses can exit faster and with few legal hassles. This should result in improving India’s international ranking due to ease of doing business,” the report said.

Existing practices

The report further added that banks should invest more time and resources to scale up the existing practices for credit evaluation, background checks and post-disbursement monitoring.

Related Topics
comment COMMENT NOW