RBI rejects textile sector’s debt recast proposal

The RBI has rejected a debt restructuring proposal

from the textile industry. The industry was hoping for a Rs 35,000 crores package. The government was considering the restructuring proposal, which could have provided a much required relief to the debt-ridden textile sector. Low or no export orders due to the sluggish economy in the West and falling profit margins have been negatively affecting the sector for quite some time.

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-five years. It added that it does not see the industry’s problems as “severe or catastrophic” to approve the proposed package.

The RBI has pointed out that “the Rs 35,000 crores restructuring requirement was only 22.5 per cent of the total fund based credit to the textile sector. Large borrowers in man-made and natural fibres were relatively safe, and the problem was only in the small and medium segments”.

The RBI 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. Hence, it is crucial to factor in this aspect before any restructuring proposal is taken up. Moreover from the report, it appears that the situation is actually on the mend. Hence, the case for asset benefit for second restructuring “is not justified”, the RBI said.

Meanwhile, the Finance Ministry had sent a communication to the CMDs of all banks, advising them to set up a special window for considering the stressed loan accounts for restructuring on a case-by-case basis. It has also advised the banks to consider stressed loan accounts in the textile sector where restructuring, including second restructuring, is required, so that viable loan accounts are nurtured and the financial health of the units restored.