The FIs, at a meeting on Thursday, agreed to provide funds towards partial redemption of FRNs, FI sources said. While this would help Essar repay a certain chunk of the FRN liabilities, another part would be converted into term loans by banks and the remainder rolled over, they said. The extent of refinancing will depend on the final proposal offered by the FRN holders.

EEB adds: The sudden change in the decision of FIs to finance Essar's FRN issue repayment has taken corporates by surprise. ``The sudden volte-face of FIs is not understandable. FIs were vehemently denying any plan to bail out Essar to repay the defaulted loan. Then what prompted FIs to finance FRN now?'' asked a corporate source.

``FIs were talking of over-exposure to the Essar group so far. Is it prudenton the part of FIs to finance defaults when genuine infrastructure projects are in dire need of funds. FIs have made a laughing stock of themselves by initially denying any plan on funding Essar FRN and later reversing that decision and financing the default,'' sources said.