Even after four months of this scheme being launched, there are very few takers. The data available with the Financial Institutions (FI) reveals that only 80 applications, involving projects worth Rs 2,850 crore, requiring around Rs 1,700 crore loan under this scheme, have been received so far.Out of this, loans for around Rs 470 crore have been sanctioned and a mere Rs 25 crore has been disbursed so far for about 27 projects by the FIs. The reason attributed by the textile industry for this includes the in-built complexities of classifying various categories for availing loan under this scheme besides stringent norms and procedures laid down by the FIs.

Moreover, most of the applications received so far by the FIs are mainly from the garments and powerloom industrysituated in northern region. There is, however, hardly any response from the textile mills in the southern region, which is considered to be the hub of the textile industry and has huge number of spinning mills. Also there has been virtually no response from the jute sector.

Only one application from the jute industry has been received by the Industrial Finance Corporation of India (IFCI), which is currently under scrutiny.

Given the existing scenario, the textile industry led by various industry associations have questioned the very purpose of launching this scheme as it is largely felt that the sector for which it is meant, is currently unable to avail the benefits of this scheme.

Representation at various levels, for relaxing the norms, are being made by the textile industry and it is hoped that the new textile policy, which is on the anvil, will remove the existing anomalies in availing credit under the scheme.

Moreover, the report of the Satyam Committee under the chairmanship of ex-chairmansecretary, on formulating guidelines for the new textile policy, will be submitted soon to the government and is expected to deal in detail with the problems faced by the textile industry in availing loan under the TUF scheme. The report would be submitted to the textiles ministry by the end of this month.

The industry is quite hopeful that following the recommendations of the Satyam Committee, the government will address the issues of availing loans by the industry under the scheme.

The issues which need to be addressed by the government mainly includes the norms laid under the scheme for project cost, minimum economic size of a unit, working capital requirements, co-opt by banks, promoters contribution interest reimbursement, besides others.

The norms of the FIs for availing credit under this scheme stipulates that the amount of loan to be sanctioned will be `need-based' subject to the attainment of the `minimum economic size', which as per FI's would be 25,000 spindles.

On the other hand, the SSIspinning mills, which would normally be of a size less than 4,000 spindles are eligible for assistance under the scheme from Sidbi.

As a result of this stipulation, larger number of viable mills which have spindleage from 4,000 t0 25,000 are unable to avail of the assistance under this scheme.

The industry has therefore urged the government to remove this anomaly and include all spinning units, irrespective of the capacity, under the armbit of this scheme.

In addition to this, the lending institutions have fixed the minimum project size under the scheme at Rs 10 crore with a term loan component at Rs 5 crore. Moreover, the FIs prefer the applicants to be existing clients in their lending portfolio. The industry feels that this condition should be done away with so as to give other viable companies a chance to approach the lending institutions.

In a recent interaction of the Southern India Mills Association (Sima) with the Industrial Development Bank of India (IDBI), it was mentioned that the unitsmaking cash losses or defaulting units may not be eligible for TUF scheme.

However, it was pointed out by Sima that given the fact that in the past three years, most of the cotton spinning units have incurred huge losses due to adverse trading conditions, had put a lot of strain on the finance of the units. It was therefore, felt that if this condition is applied, many of the units will not be eligible for assistance from this scheme.

Following the discussions, it was suggested that these conditions should be applied to the textile mills for normal trading period, that is by excluding the performance in the immediate past three years and by taking into account the track record in the last four to five years.

Industry representatives are quite hopeful that the government along with the FIs will soon work out relaxations in this scheme and help the textile industry avail funds under the scheme, for modernising their units.

Co-option by banks

The TUF scheme allows the FIs to co-opt,commercial/co-operative banks for sanction and disbursement of loan so as to have a better reach. In the last meeting of the steering committee held under the chairmanship of the secretary textiles, this point was raised when IDBI suggested that the banks should approach IDBI for co-option.

Sources said that the ministry of textiles would soon pass orders on the issue of co-opting banks for the purpose of speedy implementing the TUF scheme.

Following, the announcement by the FIs that the banks should approach them for co-opting, it is learnt that Bank of Baroda (BoB) has already approached IDBI for the same and a host of other large commercial banks are also interested. The State Bank of India (SBI), is also reported to be in talks with the FIs for the same.

The textile ministry officials have also hinted at giving the banks the freedom to lend by themselves without taking recourse to the refinancing route. A formal announcement in this respect is however awaited.

The need for co-opting of banks wasfelt as traditionally, mills have been borrowing from the banks as they feel that the system of sanction an disbursement and creation of security in case of banks is far more easy and accessible.

It is felt that there are a lot of advantages for the mills to obtain assistance from this scheme through commercial banks as compared to FIs. As for instance the Prime Lending Rates (PLR) of commercial banks are generally lower than the FIs and the difference is in the range of 1.5 per cent to 2 per cent. While the rate of the banks at present hover at around 12 per cent, that of the institutions are at 13.5 per cent.

Moreover, unlike the criteria set by the FIs of financing units with a minimum capacity of 25,000 spindles, the banks are ready to consider the credit requirements of spinning mills with capacity between 6,000 to 25,000 spindles.

Other advantages of availing credit from banks compared to FIs, says the textile units, is the fact that banks accept prepayment without any premium whereas with FIs,this is possible only at their discretion and then also with a premium. Moreover, it is felt that in case of banks the personal guarantee waiver can be obtained without any difficulty as compared to FIs.The government would like to give banks and FIs complete freedom to decide over sanctioning of loans under the scheme and to restrict its role to a monitoring body.