‘MIP will improve debt servicing of steel firms’

The imposition of Minimum Import Price (MIP) on steel products has not only brought relief to domestic steel makers, but has also cheered banks, which have a heavy exposure in the sector. Speaking to Bloomberg TV India, Federal Bank’s Executive Director and CFO Ashutosh Khajuria says debt servicing of steel companies will improve after the MIP imposition.

He also lauded the RBI for liquidity management through term repos and OMOs (open market operations). Excerpts:

What is the exposure of Federal Bank as far as the steel sector is concerned?

We do not have too much exposure. We have gradually diversified into other areas. The policy (of imposing MIP on steel products) is very exhaustive for the 173 products.

I think it will definitely bring some relief to the Indian steel manufacturers. India is third largest manufacturer of steel.

Considering the type of imports that was coming in from our neighbour (China), which has 50 per cent of the global capacity, it is a good step.

It’s been there for 6 months. That means a review after 6 months will show how exactly it is being used or misused in this particular provision. At the same time, I will say some users of steel domestically, like the auto and engineering industries, may find steel too costly.

However, in the larger interest, the industry needs to grow because per capita steel consumption in India still is quite low, and we cannot see this industry dying like this.

I think it is a good step and an exhaustive one, with a time frame for 6 months.

Most of the players across the steel industry have welcomed the relief that we will see in pricing. What does that mean for banks?

Definitely, our clients get some relief and there is some surplus coming out of production, and EBITDA is not negative. The likelihood of debt being serviced is much high.

As a whole, all banks exposed to steel manufacturers, especially those whose gearing is quite high, should see some positive contribution. And if there is a positive contribution, then chances are that it improves or increases chances of repayment of loans.

We have seen banking losses across the board at quite high levels. Have you seen strategic debt restructuring (SDR) on any of the steel accounts that you hold, or expect to see one ?

I cannot speak on behalf of other banks but we haven’t gone in for any settlement.

What about sale of stressed steel loans to asset reconstruction companies? Is that something we could see increasing, or taking a back seat, given the relief coming in and also given that accounts are improving?

With the conditions of steel manufacturers’ improving, it will lower the requirement of selling NPAs to ARCs. ARC is the last resort. No bank will simply throw or sell any of their stressed assets to an ARC, unless one sees the possibility of recovering through a banking channel low, and may be an ARC can come out with some innovative solutions for recovery. If the condition of the industry improves, it lowers the requirement for sale of stressed assets to ARC. There is a meeting at the RBI to discuss liquidity deficit. Could you run us through that? How much of an impact are we likely to see in the short run?

On the exchange rate front, if you have any intervention that directly impacts rupee liquidity – say when you are selling dollar to check the volatility in the exchange market, rupee liquidity from the system will also be removed to that extent.

As we have seen, the rupee has played out to be quite stable as compared to other EM (emerging market) currencies.

As a result there has been pressure on the liquidity side. But RBI has made measures to see that adequate liquidity is available in the system either through term repo, buyback of bonds, or open market operations (OMOs) of bond purchases. So, I don’t see much of a constraint on the liquidity side. RBI’s planning is good and it is doing well in advance (in managing liquidity).

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