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Rs 350 bn restructuring on the anvil!
Thu, 31 May Pre-Open

First it was the aviation sector, then it was a few state power utilities, and now it may very well be the maker of the shirt on your back. The government is expected to soon ask banks to restructure debt worth Rs 350 bn for the textile sector, according to the commerce minister Anand Sharma. The total outstanding loans of the textile sector stands at Rs 1.6 trillion, or about 4% of total bank credit. The sector has been facing troubled times over the past few years on account of power shortages, volatile cotton prices, rupee depreciation, labour woes and a sustained global slowdown.

A few proposals to be discussed by the Finance ministry and the Reserve Bank of India (RBI) include a two-year moratorium on term-loans, special classification of non-performing assets (NPA), and conversion of short term working capital loans into term loans. Now while a longer repayment period and debt restructuring may be beneficial for the textile sector, this move could further erode the profitability of banks. A further round of restructuring could lead to more provisioning and net present value loss (NPV) for banks, especially the public sector entities. But this is not the first time the sector has faced trouble. During the 2008-09 slowdown a number of textile mills opted for restructuring. As of now textiles constitute 18-20% of the restructured assets across banks rate in FY12.

If this restructuring deal is approved, it will help mainly the small and medium size companies according to the Confederation of Indian Textile Industry (CITI). The industry body is said to have submitted around 300 sample cases to the ministry. But the actual number could even go up to 1,000 cases. However, something is needed to help inject some life into this export oriented sector. The sector has been facing mounting losses and currently most mills are not operating at full capacity. Many mills are also facing a severe cash crunch. Even if there is some demand, some mills are unable to accept orders, as they lack sufficient working capital. So the loan restructuring will certainly bring a lease of life to them. But for their bankers, there seems to be no end to the NPA woes.

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