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RBI rejects debt restructuring for Indian textile industry

11
Jul '12
The Reserve Bank of India (RBI) has rejected a proposal to revamp debt of the textile industry, which was expecting a Rs. 350 billion package.
 
The RBI has, however, given a green signal for a two-year moratorium on terms loans as well as conversion of working capital into working capital term loan (WCTL) for a three-five year period.
 
The apex bank said it does not find the problems faced by India’s textile industry to be “severe or catastrophic”.
 
In its communication to the Ministry of Finance, the RBI said the proposed Rs. 350 billion restructuring requirement made up only 22.5 percent of the overall fund based credit to the entire textile sector.
 
It further pointed out that large borrowers in both natural as well as man-made fibre sectors were comparatively safe and the problem seemed to exist only with the small and medium segments of the industry.
 
The central bank predicted that the profitability of the textile sector will return due to softening of the cotton and cotton yarn prices.
 
It agreed that the operating profit of some textile enterprises was at present insufficient to service and repay debt. But, since the problems began in 2011, a performing borrowal account would face difficulties only after some time. Hence, there is no need to restructure debt at the moment, it said.
 
It added that the situation seems to be actually improving and hence second restructuring is not justified at present.
 
Meanwhile, the Ministry of Finance has written to various banks suggesting them to consider textile sector loan accounts, where restructuring, including second restructuring, is felt necessary. It would help in restoring the financial health of the ailing textile units, it added.
 
In the backdrop of the latest RBI decision, the Ministry of Textiles has convened a meeting on July 13 to formulate textile sector debt restructuring proposals on a case-by-case basis.
 

Fibre2fashion News Desk - India


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