Govt to decide on debt restructuring for textiles sector

09 May '12

3 min read

Unprecedented price fluctuation for cotton and cotton yarn in global and domestic markets during the last one and half years and certain restrictions placed by the Indian Government on exports of cotton and cotton yarn during 2010-11 have led to tremendous problems in the entire textile value chain from yarn to garments.

Several textile mills and units in India posted net loss during 2011-12 while some others showed poorer performance compared to the previous fiscal year. This has created an extraordinary crisis in the textiles and clothing industry, necessitating exceptional measures for survival, according to the Confederation of Indian Textile Industry (CITI).

Total loans disbursed under Technology Upgradation Fund Scheme (TUFS) from April 1999 (when TUFS was launched) onwards amounts to over Rs. 740 billion. Of these, CITI estimates the current outstanding TUFS loans at around Rs. 540 billion.

“In addition to Rs. 540 billion of outstanding TUFS loans, there may also be another Rs. 40-50 billion loans outside TUFS,” DK Nair, Secretary General, CITI, told fibre2fashion.

“Since some of the large spinning mills and integrated mills that have taken huge amount of loans are unlikely to go in for rescheduling, the amount needing rescheduling may be around Rs. 200-250 billion,” he adds.

CITI has submitted proposals to the Indian Government on rescheduling of these loans. It has suggested 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.

CITI said the country's central bank, the RBI, may provide a special dispensation in its non-performing assets (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).

Stating that the working capital of spinning and other mills eroded because of devaluation of stocks, CITI also suggested that 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.

Both the proposals put forward by CITI to the Indian Government for restructuring of textiles sector debt have no revenue implications since the industry will continue to pay interests on all the loans and no financial concessions are necessary either from Government or the banks. The special dispensation required is only in the NPA rules of the RBI.

“The proposals were first submitted by CITI to the Ministry of Textiles in November, 2011. Subsequently, a proposal incorporating CITI's suggestions were made by the Textiles Ministry to the Ministry of Finance,” reveals Mr. Nair.

“Thereafter, the RBI said it wanted a professional agency to look into the details and make recommendations. So, the Textiles Ministry assigned the study to Bank of Baroda Capitals (BOB Caps). Now, the recommendations have been received and the Government will be taking a view on the issue after considering the recommendations,” he reveals.

“If the recommendations are accepted, the RBI will have to issue a notification to all banks providing the special dispensation in NPA rules that the industry had requested for and asking the banks to consider the proposals of individual mills/units sympathetically because of the extraordinary situation,” he states.

Fibre2fashion News Desk - India

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