Finance ministry gives nod to restructure Rs 35,000 cr of textile sector debt

Textile ministry had recently asked Bank of Baroda Capital to study the sector and prepare a debt rejig plan

The finance ministry has accepted the textile ministry’s proposals on restructuring about Rs 35,000 crore of the textile industry’s debt.

The proposals included a two-year moratorium on repayment of the principal and converting some working capital loans to term loans. The finance ministry will now ask the Reserve Bank of India (RBI) to have these loans so restructured.

This was decided at a meeting on Tuesday of officials of the two ministries in New Delhi. The textile industry has a debt of Rs 55,000 crore and big losses.

The textile ministry had recently asked Bank of Baroda Capital (BoB Capital) to study the sector and prepare a debt restructuring plan. The merchant banking subsidiary of Bank of Baroda gave its report last week. On Tuesday’s decision is based on this report.

Other decisions at on Tuesday’s meeting include a special dispensation in the norms for non-performing assets (NPAs) to avoid asset reclassification in allowing a two-year moratorium on term loans and converting eroded working capital into a working capital term loan repayable in three to five years.

S V Arumugam, chairman, Confedera-tion of Indian Textile Industry, said in a statement issued here that, “We hope RBI would issue necessary instructions to the banks as early as possible.”

So far, 59 cases from the textile industry have been referred for corporate debt restructuring data and debt of Rs 11,661 crore have been repackaged under the CDR norms. State Bank of India alone has NPAs worth Rs 1,976 crore in the sector. The hope, in the sector, is to secure Rs 25,000 crore for debt restructuring, as some companies are in a position to work with existing resources.

The industry was hit by high volatility in cotton prices last year. Prices rose to a high of Rs 62,000 a candy (356 kg) last year around this time and then declined to almost half this level. Cotton is now trading at Rs 33,000 a candy.

In 2010-11, the government capped cotton yarn export at 720 million kg, as a result of which many spinners were left with huge inventories. This had resulted in a glut of yarn, while the industry and yarn spinners had cut production and also went on strike against the government’s uncertain export policy. All these had caused mounting losses. At present, all spinners are not operating at full capacity. Many are also facing a severe cash crunch. Even if there is demand, some mills are unable to accept orders, as they lack sufficient working capital, said an observer.