Textile loans of Rs. 35k crore to be restructured

Written by fe Bureau | New Delhi | Updated: May 30 2012, 09:04am hrs
Anand Sharma, textile ministerAnand Sharma, textile minister
The government on Tuesday agreed to restructure textile sector loans worth R35,000 crore to bail out cash-starved mills which fell into a debt trap due to to the sudden fall in product prices after two years of a steady rise in raw material costs.

After a meeting with finance minister Pranab Mukherjee, commerce and textile minister Anand Sharma said the government had agreed on the need to support the industry in this time of crisis. Sharma said the total outstanding debt of the textiles sector is R1,55,000 crore, of which debt of R35,000 crore needs restructuring, an official statement said.

The Confederation of Indian Textile Industry (CITI) termed the decision a substantial relief adding the Reserve Bank of India (RBI) would hopefully issue necessary instructions to banks in this regard as early as possible.

The government will issue directions to banks to consider this on priority, Sharma said. An inter-ministerial committee of senior officials will be constituted to coordinate with industry and banks for expeditious restructuring. There was agreement with the finance ministry that the debt restructuring package would be considered on a case-to-case basis by individual banks, the statement said. The textile industry had demanded a two-year moratorium on the payment of long-term loans and the finance ministry would examine the issue in consultation with the RBI, it added.

In November, Sharma had requested Mukherjee to consider loan recasts and interest subsidy for the garments and knit-wear sectors. But since dozens of mills had already received debt recast during the subprime crisis in 2008-09, the RBI was not keen to tweak its prudential norms which stipulate that any repeated rescheduling of loans be declared non-performing assets.

However, the sustained liquidity crisis in the labour-intensive sector, which employs 35 million, had forced the ministry to pitch for debt restructuring again.

Last year, Sharma had also sought a moratorium for two years from July 1 on the repayment of the principal amounts by the capital-intensive textile units, which accounted for 90% of the industry's loans, and a one-year moratorium for other textile segments.

Sources said the finance ministry would now examine the demand for special provisions in NPA norms to avoid asset reclassification and enable working capital that has been eroded to be converted into working capital term loans, which will be repayable over a period of 3-5 years.

Textile mills which bought cotton at record prices in the last marketing year which started in October 1, 2010, were caught off-guard when product prices plunged in April on poor demand from the US and the EU, which account for around 65% of textile exports. Moreover, the government's restrictions on cotton yarn export at 720 million kg in the 2010-11 fiscal to boost domestic supplies resulted in a loss of Rs 11,000 crore to the textile industry, according to an estimate by CITI.

Apparel Export Promotion Council chairman A Sakthivel said small and medium units are hit due to lack of working capital and high interest rates. CITI said in a recent report that several companies had posted losses during 2011-12.