Financial institutions and banks, which have huge exposure in steel majors Ispat Industries, Jindal Vijaynagar Steel and Essar Steel, have decided to go for the kill.

Senior FI officials said that they have begun to look into the legal position in case they decide to take the crucial step of offloading promoters' holding currently pledged with the institutions.

FIs have also ruled out any further relaxation of terms that several of the steel companies have been lobbying for after the in-principle clearance of the corporate debt restructuring plan.

The consortium of FIs and banks include ICICI Bank, Industrial Development Bank of India, State Bank of India and IFCI.

Institutional sources said: "With an improvement in steel prices, the cash flow of the corporates have improved. Hence, they should service their debt obligation. The steel companies may propose an interest rate below 10 per cent, but this is wishful thinking on their part."

FI sources said: "The promoters are free not to accept the current debt restructuring proposal, and can walk away if they choose so, but there will not be any further relaxation from us."

The sale of pledged shares are allowed under Section 176 of the Contracts Act, which states that FIs can enforce by giving a notice to the pledgers for their failure in discharging their debt obligation.

Once the notice of 10-15 days is given for sale of shares, lenders can do so, FI sources said.

Section 31 of the Securisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill 2002 excludes the sale of pledged shares by lenders.

Shares are considered to be assets as they are easily transferable and are a free commodity that can be sold, institutional sources added.

While in Ispat Industries the promoters have pledged 51 per cent of the equity base (out of around 60 per cent holding), the entire Indian promoter holding of 37 per cent in Essar Steel is pledged. A major portion of JVSL is also pledged with the institutions.

The basic restructuring package envisages writing down the equity in these companies by 40 per cent and conversion of part debt into equity in such a way that the promoters' and lenders' equity exposures in the companies remain at the same level.

It also includes a reduction in the interest rate on term loans to 14 per cent from the present 17-18 per cent level and conversion of 40 per cent of the loans into foreign currency loans carrying an 8 per cent interest.

The lenders have also agreed on waiving off penal interest and charging simple interest on the loan outstandings of the three companies.

However, the compound interest portion will be converted into 7-10 year zero coupon bonds. Also, trusts and retention accounts would be set up to ensure the implementation of the debt recast.