This promises to be one of the largest loan recoveries by UTI. Essar Steel has agreed to repay a total of Rs 927 crore to UTI-1 within one year as part of a debt restructuring programme.

According to the agreement, the company will start the repayment process with an upfront payment of Rs 80 crore this month, followed by Rs 10 crore each month and a bullet payment of Rs 737 crore by December '05.

This will be a major windfall for investors of the foreclosed assured return schemes, as the institution had promised that investors will be eligible for additional payment on account of any NPA recovery.

This will be the case for two years after the redemption of the scheme. The institution has provided for bad assets to the tune of 95%.

According to sources, the sum paid by Essar Steel will represent payment of simple interest in full at the documented rates - that is between 17% to 20% - and a waiver of penal and compound interest.

An Essar group spokesperson, when contacted, said: "We are in negotiations with UTI for an amicable resolution of the issue. Though we are confident, we are yet to receive an official communication from UTI."

UTI officials said that the settlement has been finalised. According to ESL's balance sheet for FY04, unsecured and non-convertible debentures issued to UTI amount to Rs 827.68 crore, including interest up to September 30, '02.

As no security was created in relation to the UTI loans of Rs 94 crore(which forms a part of the Rs 827.68 crore figure), the amount was regrouped as unsecured loans in the balance sheet.

UTI has been getting aggressive on recovering NPAs and has managed to get back over Rs 900 crore from defaulting companies over the past one year. UTI had earlier set up a team called the special recovery group to focus on NPA recoveries and also for monitoring investments.

Various UTI schemes had built up large exposures in companies belonging to sectors like steel, which had turned bad over the years.

US-64, the erstwhile flagship scheme of UTI has NPAs of over Rs 1,000 crore, followed by US-71 with NPAs worth about Rs 800 crore. Some monthly income plans (MIPs) which were foreclosed, were also saddled with bad loans.

UTI's NPAs amounted to close to Rs 6,000 crore as of July '03. It has opted for a one-time settlement with many defaulting companies.

ESL in FY03 had received approval from the corporate debt restructuring (CDR) group for a comprehensive financial restructuring plan.

The plan envisaged conversion of existing term loans, debentures and interest into rupee term loans, foreign currency loans, reduced rate rupee term loans, conversion of unsecured promoters contribution into equity, differential and compound interest to be converted into cumulative redeemable preference shares and zero coupon bonds respectively and a part of the existing loans to be coverted into equity.

It however remains unclear as to how the company will repay this amount in a single year.

According to sources, ESL will refinance a huge part of its debt with cheaper loans which could be raised through the debt market. ESL is also known to have undergone a rating exercise which will help it to raise resources.

Banking sources further say that ESL will look for a bank guarantee which will enhance its credit rating. This will, in turn, help the company to raise loans at very fine coupons.

The restructuring agreement is expected to save the company over Rs 53 crore on UTI's entire debt. As of March 31, '04, it had unsecured loans of Rs 697.36 crore, while secured loans on the date amounted to Rs 3,977 crore.