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Jitters on textile loan respite

Mumbai, May 4: Financial institutions and banks are wary of the government’s move to restructure the loans of textile units, a measure similar to the package of concessions given earlier this year to three steel companies.

Finance minister Jaswant Singh had announced in this year’s budget that a plan to help the textile industry ward off the growing threat of sickness is on the cards. Though details of the scheme, which will be drawn up in consultation with all those affected by it, are to be finalised, Singh’s announcement is causing some degree of concern among banks and financial institutions.

Bankers say they are not against a package to some sectors of this industry that can be rejuvenated, but they have reservations about offering succour to segments they believe have no reasonable chance of a revival. “There are some segments in the industry that are in dire straits. Though the government is yet to come out with details of the package, we feel restructuring in such cases will mean putting good money after bad,” a senior official of a leading bank said.

The concern is echoed by others who point out to the pile non-performing assets (NPAs) that have left banks bleeding in the past couple of years. This happened largely due to the decline of some sectors in the textile industry, following competition from companies at home, rising tide of imports, severe technological obsolescence and lack of economies of scale.

One such section in the industry that has seen its business collapse is the organised mills. After having occupied a pre-eminent position during the 1970s’ and 1980s’, there are only a handful of such companies left now. Most of them have wound up operations and their real estate is now being unlocked (read sold) for value.

“There was a time when banks and financial institutions sunk crores in expansion of textile factories. However, no worthwhile modernisation was carried out with the result that these units suffered badly and loans given to them turned into NPAs,” the official said.

Bankers say spinning and garment industries are among those that are faring reasonably well, but even they would do well to bring in better scale of operations.

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