Punjab National Bank (PNB), India’s fourth-largest state lender by assets, could take control of some of the country’s most heavily indebted steel companies and sell them on as part of a restructuring backed by New Delhi, bank officials said.
PNB, a quarter of whose nearly $4 billion portfolio of steel loans is stressed, is considering taking charge of some companies over the next two years, changing their management and then selling stakes, Executive Director K.V. Brahmaji Rao said.
The bank is also talking to its lending partners about carrying out debt-for-equity swaps, which would dilute the stakes of existing shareholders and give creditors majority ownership, but nothing has been finalised.
“We are getting feelers from some local investors who are interested to buy stakes in these companies,” Rao told Reuters on Tuesday, declining to name the borrowers or the interested parties.
The issue has a broad significance in India, since banks, fearing more loans could go sour, have slowed financing to roads, ports and mining projects, strangling Prime Minister Narendra Modi’s efforts to revive the economy.
Total bad loans held by all banks are estimated to be at a decade-high of $49 billion. PNB, fellow government-controlled State Bank of India and other lenders are saddled with stressed loans of about $23 billion to the steel industry, which is struggling with weak prices and surging imports from an oversupplied China.
Among steel companies, debt-heavy Electrosteel Steels Ltd said on Monday its lenders would restructure its loans, while Bhushan Steel is another big borrower.
Nittin Johari, finance head of Bhushan Steel which recently restructured its $5 billion debt, said he was not aware of any plans by lenders to seek control of any company.
The finance ministry is considering a rescue package for steel companies, including hiking India’s 10 percent import duty and injecting funds into companies deemed viable, a senior ministry source said.
A senior steel ministry official said raising the import duty was a priority.