Several MP textile firms seek debt restructuring

14 Aug '12

3 min read

The anticipated decline in cotton acreage has started affecting the textile sector in central Indian state of Madhya Pradesh. Several textile companies, which have taken loans and are not in a condition to repay, are approaching their banks for capital debt restructuring (CDR) in order to get rid of the crisis.

Mr. Tarun Baldua, Chairman of Madhya Pradesh Textile Mills Association and President at Maral Overseas Limited, told Fibre2fashion, “There is a drought like situation in the whole country and the cotton acreage is expected to be reduced next year by almost 10 to 12 percent. As a result, a shortage in the supply of cotton fibre is anticipated and the cotton prices have already started increasing.”

“But, on the other hand, the prices of yarn, fabrics and finished garments remain the same. They are not changing in the international market. Hence, the textile and garment manufacturers in Madhya Pradesh might have a tough time due to the disparity between the raw material and finished product prices,” he reasons.

When quizzed about several textile firms in the state seeking loan restructuring, he mentions, “Debt restructuring is required because textile companies are not being able to pay their dues as the market conditions are not favourable to the industry. Also the acute economic slowdown in Europe is adding to the woes of the textile sector”.

Explaining the procedure of CDR to Fibre2fashion, he says, “Financial institutions provide loan to any organization and when a group of financial institutions provides loans and a problem of repayment of principal or interest occurs, then the concerned board or the body of financial institutions, which takes care of such loans which are not being repaid properly, comes into picture and decides the loan restructuring method that is conducive to all loan giving financial institutions.”

“In the existing scenario where garnered profits are not enough for the textile mill owners to pay their dues to the financial institutions, the Central Government and RBI have opted to give some breather to the textile industry by agreeing to restructure Rs. 4.5 million worth of Indian textile sector loans on a case-to-case basis,” he avers.

The Madhya Pradesh textile sector is also demanding direct subsidy benefit under the Central Government sponsored Technology Upgradation Fund Scheme (TUFS). “The TUFS subsidy is allowed to companies which are either modernizing their planting machinery or expanding to new capacities.”

“As per the scheme, the textile commissioner provides 5 percent interest subsidy to fabrics and looms and 4 percent to other textiles on their capital investment. So, now we are demanding a refund of the applicable 4to 5 percent subsidy as against the 12 percent interest rate charged by the banks,” he informs.

“The textile commissioner should pay the 4 percent to the bank and the bank should charge only 8 percent from us so that our cash flow can be managed smoothly. Otherwise, the process becomes delayed. Hence, we are demanding the direct subsidy benefit,” he adds.

Fibre2fashion News Desk - India

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