The Government has issued directions to banks for restructuring of textile industry loans on a case-by-case basis in accordance with the Reserve Bank of India’s prudential guidelines on restructuring of advances by banks.
Bank of Baroda Capital Market has, in its assessment report on stress in the textile industry, has estimated that the total fund based credit (including TUFS) extended to the textile industry was at Rs. 155,809 crores. With the addition of the estimated non-fund credit of Rs. 15,542 crores, the total exposure of banks to the textile industry amounts to Rs. 171,351 crores.
On the basis of revenues and cost projection of 303 companies for FY 12, Bank of Baroda Capital Market Ltd. has arrived at an EBIT of Rs. 13,311 crores. On that EBIT, there is a deficit to the tune of 25.8 per cent (or Rs. 4,630 crores) on a debt + interest payable of Rs. 17,942 crores per year. On this basis, it is expected that the outstanding debt at the end of FY12 should be Rs. 100,617 crores, of which 25.8 per cent needs to be rescheduled. This works out to Rs. 25,967 crores, and if another Rs. 10,000 crores is to be added, which would be the loss in value of the inventory, the total loans that need to be restructured should be about Rs. 36,000 crores.
The restructuring by banks under RBI’s extant guidelines is to be completed in 90 days after the applications are submitted in the prescribed formats to banks.
A meeting on debt restructuring was chaired by the then Finance Minister where the following decisions were taken:
* The detailed study and the restructuring proposal by Bank of Baroda Capital Markets may be forwarded to the Reserve Bank for its consideration
* Individual banks will provide a window for restructuring of loans for textiles industry on a case-by-case basis
* The Administrative Ministry will mobilize the industry to formulate the case-by-case restructuring proposals
* An inter-ministerial group of officers may be constituted to help the industry sort out issues.
The study report was forwarded to RBI which, in its response on June 29, said:
(i) The case for asset classification benefit on second restructuring is not justified
(ii) The concession sought on provisioning is not acceded to, as provisioning is the first defence against expected losses
(iii) RBI has expressed its ‘no objection’ to moratorium on repayment of principal amounts and conversion of working capital into working capital term loans repayable over a period of 3-5 years.
In pursuance of the RBI advice, the Ministry of Finance has issued directions to banks to create a special window for textile industry debt restructuring on case-by-case basis.
A group of officers was constituted by Government on June 13 to co-ordinate with banks and the textile industry for restructuring of loans.