'Textile debt recast will not pressure banks' profitability'

Defending the debt recast package for the textile sector, the government on Saturday said it will support to units facing hard times and not put pressure on the banks.

The finance ministry has made an assessment of the impact of debt restructuring (for textile units) on the public sector banks, D K Mittal, secretary, department of financial services, told reporters on the sidelines of a human resource summit on Saturday.

Early this week, the finance and textile ministries took a decision on restructuring loans worth Rs 35,000 crore of the total outstanding debt of Rs 1,55,809 crore. The government will issue directions to banks to consider this on a priority basis.

 

According to corporate debt restructuring (CDR) cell data, 59 textile units with debt worth Rs 11,661 crore have been given the CDR package.

The loan portfolio restructuring by the banks is estimated to have increased by 80 basis points to five per cent of the total advances (Rs 2,35,000 crore) at the end of March. Given the sharp increase in restructured assets, banks asset quality is expected to continue to deteriorate in the current financial year, according to rating agency CARE.

Mittal said the recast was support to the industry, which was going through hard times. “The demand has been hit by global economic slowdown. Banks will take decision on recasting loans on a case-to-case basis. The cases where units are facing problems due to management incompetence should be kept out. CDR should be done only is cases where the slippage is due to factors beyond the control of the management,” he said.

The finance ministry will consult Reserve Bank of India for giving a two-year moratorium repayment and convert working capital eroded into term into term loans with three-five year repayment period. The government is also mulling a special provision in non-performing assets norms to avoid asset reclassification for these loans.