RBI reconsiders textile debt recast on case-by-case basis

While the RBI has rejected a debt restructuring proposal

from the textile industry, as the industry was hoping for a Rs 35,000 crores package, it has asked all banks to open a special window for the sector between August 1 to October 30, 2012 to scrutiny and consider debt recast on a case-by-case basis. The Finance Ministry has asked banks to consider stressed loan accounts in the textile sector for restructuring, including second restructuring, so that viable loan accounts are revived and the financial health of the units are restored. The sector has been hit by the sharp volatility in cotton yarn prices and poor domestic and global demand. As a result textile units were facing difficulty in repaying term loans and financing working capital and demanded debt restructuring for the entire sector.

Earlier in 2008, in order to deal with the global meltdown, RBI brought in a special dispensation providing for a second restructuring for the entire textile sector. The government was once again considering the restructuring proposal, which could have provided a much required relief to the debt-ridden textile sector.

However, the Reserve Bank of India said it had no objection to a two-year moratorium on term loans and conversion of working capital into working capital term loan (WCTL) within a timeframe of three to five years. It added that it does not see the industry’s problems as “severe or catastrophic” to approve the proposed package across the sector.

The RBI has added: “With the softening of the cotton and cotton yarn prices, the profitability of the sector is expected to return, although at present it found the operating profit insufficient on an aggregate basis to service and repay debt. Given that the problems started in 2011, a performing borrowal account should face difficulties only after some time, so, the need for restructuring will be felt only after a time lag.”