The domestic steel industry is yet to come out of the bad loan mess that it has landed itself in. The total exposure of the banking sector to the industry is about Rs.3.2 trillion, of which gross bad loans is about Rs.1.15 trillion as of March 2018. However, thanks to government spending on infrastructure, domestic demand has shown a robust recovery, aiding in higher capacity utilisation over the past couple of years. According to India Ratings (Ind-Ra), FY19 will be a year of revival of stressed assets with the hot-rolled coils segment consolidating in the hands of the top four players. On the back of improving operating profit (Ebitda) and declining debt to equity, the rating agency expects the sector to witness the much-required balance sheet deleveraging in the second half of the current fiscal. Though spreads have shown improvement, the agency believes operating profit could be impacted by Rs.3,000 a tonne because of growing global trade friction, resulting in increased exports to India from Asean and China. Though there is safeguard duties on imports, a fall in global prices could nullify that. The only silver lining is that input prices (coking coal and iron ore) are expected to stay benign during the fiscal. Whether that will be good enough for the sector to come out of the woods remains to be seen.