After setting a record as the first Indian company to default on its international borrowings, Essar Steel is on the verge of another dubious record -- that of being the largest corporate Non Performing Asset on the books of Indian banks and financial institutions -- unless its sale of assets brings some quick cash. (Essar had defaulted on its $40 mn syndicated loan in March and $250 mn FRN issue in July). ASK Raymond James & Associates, an international broking firm, has compiled Essars' latest exposure numbers -- Indian banks and FI have an exposure of Rs 3,157 crores to Essar Steel as of March 31, 1999. Of these, Rs 1,144 crores are by way of performance guarantees, the bulk of which have been provided by ICICI. This is the position with respect to Essar Steel alone -- exposure to the group is Rs 8,625 crores. Even these figures, the firm says, may be under-estimated because banks, financial institutions have refused to provide accurate figures to the media or analystson the plea of client confidentiality.

How it affects them

The broking firm analyses that if the Essar becomes an NPA in the year 2000, then IDBI, ICICI and IFCI will be the worst affected. Only SBI's adjusted book value can withstand a write off of the entire Essar group exposure. Though IDBI is the lead institution, ICICI has a bigger exposure because of its guarantees. The report says that ICICI's practice of providing guarantees to cash-strapped companies has always been a matter of concern. Since institutions part with no information, it is impossible to say whether the guarantee terms are being fulfilled. ASK Raymond James also says ``we are fairly certain that Essar Steel's loans from institutions and banks are currently not treated as NPAs and that Essar's domestic loans may have already been rolled over without any publicity unlike the highly publicised FRN default''. This issue, it says, has not been addressed by domestic rating agencies, which continue to give the highest rating to IDBIand ICICI. We can add some more. The rating agencies, are owned by the institutions, hence their reluctance to downgrade. In fact, their downgrade of other Essar companies to default happened only when hopes of an FRN bailout faded. Clearly the next move has to come from the regulators. Top RBI officials openly admitted that they would do nothing until the next round of inspections of banks and institutions. Venturing rightSEBI's attempts to give the venture capital business a big push roping in international success symbols Sabeer `Hotmail' Bhatia and K.B. `Exodus' Chandrashekhar on its committee makes for nice front page news, but what else? The star duo may well help sharpen SEBI's venture capital guidelines and make finance more easily available, but that is only part of the problem that a desi entrepreneur faces. Cutting through yards of red tape is far more difficult and time consuming today than to find financiers. Teaching venture capital companies to spot the right projects is another hurdle. Thatis why Bhatia and Chandrashekhar, and hundreds of Indian success stories in the USA, find it far easier to convert their big ideas and brilliance into big money in a foreign land. The guys at Infosys, who are India's single big venture capital success story, may be better placed to guide SEBI on how to not to smother entrepreneurship with red tape.

Tailpiece

One group of people who are not impressed by SEBI's recruitment of international stars, are its officers. For over a year, now SEBI officers have been demanding a fair personnel policy. A few weeks ago, they met the chairman to renew their demand. What they are asking is that SEBI cut down on the number of officials who are brought in as executive directors. That the officers' career path should not come to a halt at the level of divisional chief. They also would like that a good chunk of the foreign trips and training programmes be directed their way. SEBI's board is apparently ``seized of the matter'', but after waiting for a HRD policyfor over a year, the officers association is losing patience.

Author's e-mail: suchetadalal@yahoo.com