Textile loan restructuring to help small & medium enterprises the most

Larger firms might stay away from rejig offer due to fear of credit profile being hit

Small and medium enterprises (SMEs) in the textile industry are relieved at the Rs 35,000-crore loan restructuring proposal cleared by the Union finance ministry on Tuesday. Large textile companies, however, are likely to stay away from rejigging their loans, fearing its negative impact on their credit profile.

Consisting of around 85 per cent of the Rs 420,000-crore ($75 billion) domestic textile industry, SMEs were the worst sufferers in the demand slump of readymade garments which began early last year and continues till date.

Spinners faced heavy losses due to the volatility in cotton prices, as they built inventory to their capacity when these prices were ruling at highs at Rs 62,000 a candy (356 kg), in anticipation of further appreciation. Around that time, however, global apparel demand was also supporting the raw material’s upward movement. The sudden collapse in demand with the onset of global economic uncertainties pulled down cotton prices, now around Rs 33,000 a candy. Reeling under Rs 55,000 crore of debt, the capital-intensive textile industry incurred a combined loss of Rs 11,000 crore in 2011-12, also due to frequent changes in government policies, including a ban on cotton and cotton yarn exports.

“Although restructuring of loans is open to all, smaller players are the ones who will step ahead, while the bigger players are likely to stay away as they are in a better position on making ends meet,” said D K Nair, secretary general of Confederation of Indian Textile Industry (Citi).

“Big players in the textile space are profitable and, hence, there is no need for them to opt for restructuring,” said Dilip Jiwrajka, managing director of Alok Industries.

Analysts feel bigger textile companies will stay away from restructuring their loans as it will have an impact on their credit profile. According to corporate debt restructuring data, of 292 cases which have gone through this process, there are 59 from the textile sector, with debt worth Rs 11,661 crore. State Bank of India alone has non-performing assets worth Rs 1,962 crore.

This (the new loan package) is short-term relief but companies will also have to do their bit and turn profitable, so that they can pay off the loans later,” said Mitesh Shah, vice-president of finance and corporate affairs, Mandhana Industries, an integrated textile company.

Many companies had also taken loans under the Technology Upgradation Fund Scheme, since these were available at lower interest rates. Since July last year, Citi has been pleading with the government to restructure the loans.

“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 Nair.