The textile and finance ministries are expected to meet next week to discuss restructuring of loans for the textile sector, according to sources. Representatives of the Reserve Bank of India may also attend the meeting.
The textile industry, reeling from Rs 55,000-crore debt, incurred losses worth Rs 11,000 crore in 2011-12 due to changes in government policies.
According to corporate debt restructuring data, of the total 292 cases, 59 textile cases with debt worth Rs 11,661 crore have been given the CDR package. State Bank of India has non-performing assets worth Rs 1,1962 crore in the textile sector.
The textile ministry had recently asked Bank of Baroda Capital to study the sector and prepare a debt restructuring plan. The merchant banking subsidiary of Bank of Baroda gave its report last week.
The sector hopes to secure Rs 25,000 crore for debt restructuring, as some companies are in a position to work with their existing resources.
The industry was hit 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. Cotton is trading at Rs 33,000 a candy at present.
In 2010-11, the government capped cotton yarn exports at 720 million kg, as a result of which many spinners were left with huge inventories.
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.
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.