Central bank gives partial go-ahead for textile companies debt recast

Written by Sunny Verma | Timsy Jaipuria | New Delhi | Updated: Aug 21 2012, 06:07am hrs
Shedding its initial reluctance, the Reserve Bank of India (RBI) has approved a part of the debt recast proposal for troubled textile companies. According to sources, the government and the central bank have allowed public sector banks to recast loans worth R12,700 crore taken by textile firms.

As per the plan, SBI will restructure loans worth R2,000 crore, Bank of Baroda R1,093 crore, IDBI Bank R900 crore, Bank of India R500 crore and Punjab National Bank R470 crore, official sources said.

The recast is in the form of a two-year moratorium (principal plus interest) on term loans and conversion of working capital into working capital term loan in three-five years. The total exposure of the banks to the textile industry amounts to R1.71 lakh crore. The central bank, however, remains firm on its stance that a second restructuring of textile loans will not get any relaxation on the asset qualification front.

In May this year, the finance ministry, then headed by Pranab Mukherjee, cleared a debt recast proposal of Rs 35,000 crore for the textile industry but the RBI remained wary of certain regulatory relaxations proposed including those on asset qualification.

Officials said the first set of restructuring of loans worth Rs 12,700 crore was cleared by the RBI last month. The finance ministry is discussing proposals for another round of restructuring as the original demand from the industry was for restructuring Rs 35,000-crore debt.

The textile industry is reeling under the impact of volatile yarn prices and a slowdown in major export markets, a fact recognised by finance minister P Chidambaram in his first statement to media after taking over on August 6 and the Prime Minister's Economic Advisory Council in its latest report.

The loan recast for textile sector the largest employer in the manufacturing space comes at a time when industrial growth and exports have slowed.

In its assessment report on stress in the textile industry, Bank of Baroda Capital Market estimated the total fund based exposure of banks to the sector at Rs 1.55 lakh crore and non-fund based credit exposure at Rs 15,542 crore. The finance ministry had asked Bank of Baroda Capital Markets to prepare the restructuring proposal for textile firms for RBI's consideration.

The recast of loans will benefit around 2,000 cotton textiles mills, the majority of which are in Tamil Nadu, and the man-made fibre segment in Gujarat. Cotton mills will account for nearly 90% of the restructured amount, while remaining will be pocketed by man-made fibre industries.