News

Fresh debt recast may deprive textile units of benefits under upgradation scheme

Amrita Nair Ghaswalla Mumbai | Updated on November 25, 2017 Published on April 23, 2014

Proposal will increase borrowing costs for textile companies, say analysts

The Government’s textile debt recast plan continues to remain grounded, with many textile mills, garment and processing units fearing that their bank loans could turn into non- performing assets (NPAs).

A second restructuring, as has been envisaged, would only deprive the textile sector of the benefits under the Technology Upgradation Fund Scheme and increase their borrowing costs, according to analysts.

In a bid to address the slowdown in the textiles sector, the Government had proposed a debt restructuring package for the textiles industry in end 2012, amounting to ₹35,000 crore.

“The Plan allocation for the Ministry of Textiles under the Technology Upgradation Funds Scheme (TUFS) was revised from ₹8,000 crore to ₹15,404 crore in the 11th Five-Year Plan. The Government also enhanced the 11th Plan allocation of the Ministry from ₹14,000 crore to ₹19,000 crore to provide benefits to the textiles sector,” said an official from the Ministry.

The official added that the Plan allocations in 2010-11 was ₹4,500 crore, while in 2011-12 it was ₹5,000 crore, and in 2012-13 it was ₹7,000 crore.

However, the scheme has remained largely unutilised and textile companies have opted for higher interest rate loans to keep themselves afloat. Analysts have pointed out that if one takes a look at the share of the top three industries in stressed assets, the textile sector, the iron and steel sector, and the infrastructure sector have higher total advances.

“Infrastructure, iron and steel and the textile sectors have high non performing assets. An analysis of NPAs by sector of credit deployment reveals that at nearly 16 per cent of advances, stressed assets are the highest in the industrial sector. In comparison, stressed asset ratios for services and agriculture are lower at around 7.8 per cent and 6.5 per cent, respectively,” said Nikhil Shah, senior director, Alvarez & Marsal India (A&M), a stressed assets management company.

Stating that export demand was sluggish in the textile sector on the back of persistent economic slowdown in key export destinations of the US and Europe, and continuous deterioration in India’s competitiveness as compared to China, Vietnam and Bangladesh, Shah added that volatile input costs and the timing of the raw material buying, receivables and inventory management were the other key liquidity determinants.

Published on April 23, 2014
null
This article is closed for comments.
Please Email the Editor