The Industrial Development Bank of India (IDBI) has taken the lead in this regard. The term-lending institution will appoint "lenders' engineer" for the Essar Oil project for which it has recently sanctioned a fresh loan of Rs 221 crore to fund the cost overrun. "From now on, the institutions will appoint "lenders' engineer" at each and every big project. This will also be one of the preconditions for infusion of fresh loans in the five last-mile steel projects. This is a global practice," said in institutional source.

In India for the first time, a "lenders' engineer" was appointed at the Dabhol power project. "In case of Dabhol, it was an experiment. From now on, institutionswill appoint `lenders' engineer' at every big project. This will be a regular practice to avoid cost and time overrun. We also should not allow any promoter to siphon off funds," sources said.

Appointment of "lenders' engineer" is one of the many conditions which the institutions are imposing on corporates for all fresh exposures. The move has been triggered off by the state of affairs in the steel industry. However, institutions have decided to take a "tough stand" for all new projects or those existing projects for which promoters are seeking concessions for fresh funds on account of cost or time overrun. Institutions have made the pledge of promoters' shares mandatory for any new exposure to the existing projects in all sectors. They are also insisting on a tougher debt: equity ratio (1:1) across all industries with prospective effect.

Institutions have also made it clear that promoters will not be allowed to set up new projects unless the existing ones are completed. There are also insisting on freshpromoters' contribution as a precondition to fresh funds infusion.

"It is not only in steel projects alone that we are demanding pledging of shares with voting rights as a necessary precondition for fresh infusion of funds. Wherever there is a cost or time overrun and the promoters are asking for concessions in terms of fresh funds infusion or moratorium on repayments, we are asking for pledging of shares," sources said.

Institutions seems to have decided to turn the heat on corporates. The institutions have already made the pledge of promoters' shares mandatory for any new exposure to the existing projects in all sectors. They are also insisting on a tougher debt: equity ratio (1:1) across all industries with prospective effect. "We should have taken this stand earlier. The objective is to discipline the promoters in implementation of new projects and hold them accountable," said FI sources.

The trigger point was the state of affairs in the steel sector where the term lending institutions -- which havehad a sizable exposure -- have agreed to commit fresh funds on condition of promoters' pledging shares with them. "It is not only the five last-mile steel projects where we are demanding pledge of shares -- with voting rights -- as a necessary precondition for fresh infusion of funds. Henceforth, in any sector whereever there is a cost or time overrun and the promoters are asking for concessions in terms of fresh funds infusion or moratorium on repayments, we are asking for pledge of shares," sources said.

The "drastic" step has been taken at a recent meeting of the heads of institutions. "With the pledge of shares, the voting rights comes automatically. If any problems crop up, the institutions should be able to bring in a new management," sources said. Senior executives of term lending institutions, however, admit that there has been resistance from the corporates. "We are going ahead despite this... The tough steps should be taken now when the country is facing an industrial slowdown. If a promoter isfound unfit to run a company, we need to change him even though that is not an easy task," sources said. Term lending institutions are working out a collective approach to combat the "clout" of promoters. "We will bring in changes in documentation of all new loan agreements which will strengthen our stance," institutional sources said.

There has been a consensus among institutions to insist on a stricter 1:1 debt:equity for all projects across all industries.