The cotton textile industry will have to wait for some more time before the government and the Reserve Bank of India (RBI) finally come to their rescue and restructure their debt.
The industry suffered heavy losses last year due to volatility in cotton prices and industry’s apex body had to appeal to the finance ministry to restructure its loans.
After several round of representations and reiterations yesterday, a high level meeting took place where representatives from finance and textile ministry along with planning commission members and bank representative were present and there the finance ministry asked the textile ministry officials to review performance of cotton textile companies in the quarter ended December after collating all data and then prepare the case afresh, a source in a nationalized bank said.
The textile sector fears if their loans are not restructured, they will turn into a non performing asset for banks.
Fitch Ratings, in its report released few days back, said, “Cotton yarn and lower-end fabric manufacturers reported instances of overused working-capital limits in the current financial year so far. Textile companies hit by deteriorating debt repayment capacity due to funds tied up in inventories or cash losses or with large debt repayments due to the uncertain global demand recovery and consequently the uncertain overseas demand for textiles.”
So far, debt restructuring demand of the industry has not met with any positive response from RBI and if debt restructuring is not happening, Fitch said, “It could imply refinancing risks for companies under distress.”
In a presentation made by the Confederation of Indian Textile Industry (Citi) to the ministries and planning commission, it said the textile industry debt was Rs 1,00,000 crore, although no payment default had been seen so far, they fear that due to the current economic conditions they might end up doing so in the future. The Indian spinning industry was in losses worth Rs 11,000 crore last year.
Currently, orders are coming in, but the sector has not been able to accept these as they have problems in managing even their working capital.
“Most of the money is used to repay loans and cover losses,” said D K Nair, secretary-general of Citi.
Even Fitch report recognised that, “Margin pressure weighs heavily on cotton and synthetic textiles driven by rising wage and power costs (including shortage of power), and higher interest rates.”
Demand concerns still remain an issue for the industry currently, but the fall in cotton prices coupled with the fluctuation in the rupee is what is working to the advantage of the sector, said an industry official.
Mills were forced to postpone their buying as they already had existing inventory, which resulted in weak demand from mills for cotton and cotton products.
“Cash loss for cotton yarn manufacturers and lower-end fabric companies in the first half of 2011-12 impaired their debt repayment capacity leading to several instances of over-utilisation of working capital limits,” the Fitch Ratings report said.