The Union textile ministry has appointed Bank of Baroda Capital, the merchant banking subsidiary of Bank of Baroda (BoB), to prepare a debt restructuring plan for the textile industry. Confirming the development, sources in BoB said the bank was expected to submit its recommendations by next week.
The industry was in losses worth Rs 11,000 crore last year due to high volatility in cotton prices. Prices rose to a high of Rs 62,000 a candy (356 kg) and then declined to almost half, before stabilising at the current level of Rs 35,000.
The industry also faced slowdown due to weak demand from the US and the euro zone. Since last July, the Confederation of Indian Textile Industry (CITI) has been pleading with the government to restructure loans of the sector.
The industry is looking at restructuring of loans without converting loan account into non-performing asset. Some companies, which had restructured loans during the slowdown in 2008-09, are again looking at restructuring those.
“Textile companies are hit not due to internal factors, but due to external factors like inconsistent government policies regarding cotton exports, cap on cotton yarn exports and international market trends,” said D K Nair, secretary general of CITI. A committee was earlier formed to look into the issue, but nothing materialised from that.
In 2010-11, the government capped cotton yarn exports at 720 million kg. Due to this, many spinners were left with huge inventories.
At present, all spinners are not operating at their full capacities. Many are also facing severe cash crunch. Even if there was demand, some mills were unable to accept the orders, as they did not have sufficient working capital, said an industry observer.
Mills bought cotton for Rs 55,000-63,000 a candy in 2010-11. But later, prices saw a drastic decline, forcing mills to sit on high-cost inventories. Due to this, spinners were forced to sell cotton yarn at a discount, to make sure money was still pouring in.