Textile ministry to discuss debt rejig with finmin, RBI this week

Written by Neha Pal | Neha Pal | New Delhi | Updated: May 28 2012, 08:18am hrs
The textile ministry will discuss with the finance ministry and RBI officials this week the plan for another debt restructuring for the textile sector.

The ministry would be submitting the report prepared by Bank of Baroda Capital Markets to North Block and the central bank. The report assesses the magnitude of restructuring requirements of the industry.

However, the textile ministry officials are not sounding too optimistic about the issue as finance ministry had warned the banks regarding restructuring of general loans. The meeting for loan restructuring was supposed to be held last week but was postponed at the last moment, said a senior textile ministry official.

According to figures provided by the textile ministry, the entire rescheduling of loans will not cover more than R25,000 crore of term loans. In addition, another R7500 crore of working capital may have to be converted into Working Capital Term Loan (WCTL). Industry sources opined that the restructuring would not put any financial pressure on the banks as they have only asked to defer the payment of loan amount.

The proposals that have been made by the textile industry say that a two year moratorium may be allowed for textiles and clothing units for repayment of principal amounts against term loans taken by them from banks. Second, it says that RBI may provide a special dispensation in its NPA rules to ensure that the moratorium of two years does not lead to asset reclassification or additional provisioning by banks, including for cases of repeated restructuring or accounts which are under corporate debt restructuring (CDR).

The ministry also wants that the working capital eroded because of devaluation of stocks- both raw materials and finished products-may be allowed to be converted to working capital term loan (WCTL) repayable in five years with a moratorium of six months.

The Bank of Baroda Capital has recently submitted their report to the textile ministry which is being examined by the textile ministry and would be submitted to the finance ministry.

SV Arumugam, chairman, Confederation of Indian Textile Industry (CITI) said, The proposals submitted by the textile ministry do not have any revenue implications since the applicable interests would continue to be paid by the industry.

Andhra Pradesh and Tamil Nadu accounts for 50% of spinning capacity of the industry. Power cuts are the main problem that has been troubling the Southern textile industry.

G Punnaiah Choudhary, chairman, Andhra Pradesh Spinning Mills Association said, More than R1 lakh crore debt is on the textile industry and about R20, 000 crore of term loan and R7,500 of working capital has to be rescheduled.

Choudhary further said that the industry has come to this bad-phase due to external reasons which are beyond control as spinning and textile industry stocked up cotton for 7-8 months after buying cotton at very high prices.

There was high fluctuation in cotton prices which were as high as R65, 000 and came down to R35,000. The ban on export of cotton yarn from January 1 to March 31 last year resulted in accumulation of stock and carrying over stock of 500 million kg which further resulted in total losses going up to R11, 000 crore.

The bank interest rates had gone up from 8% to 15% in a span of one year which further affected the textile industry which is a capital intensive industry.

S Dinakaran,chairman, The Southern India Mill's Association (SIMA) said, Since the exports did not happen and international markets collapsed, there was a carry over stock of 500 million kg. There was a decrease in demand of cotton yarn and international traders wanted it to be at lower prices.

Dinakaran said, We have not asked for any interest waiver as we have only asked the government to give a moratorium of two years for the payment of the principal amount. He further said that the eroding working capital which was a result of fluctuation in cotton and cotton-yarn prices should be converted into working capital term loan.

Dinakaran said that finance minister Pranab Mukherjee has said that the textile industry would be treated as a special case.

For this sector, it will be the first re-structuring as there will be no financial implication and no-revenue loss.