The Hindu : Centre announces package for textile units

Online edition of India's National Newspaper
Wednesday, Sep 10, 2003

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Business

Centre announces package for textile units

By Our Special Correspondent

NEW DELHI SEPT. 9. The Central Government today announced packages of assistance for two major sectors of the textile industry — powerlooms and integrated textile units — as part of an exercise to revitalise the industry and help it become more competitive in the context of the total phase out of the quota regime by the end of next year.

The Rs. 260 crore package for the powerloom sector includes a whopping increase in the direct subsidy from 12 per cent to 20 per cent for acquiring modern machinery under the Technology Upgradation Fund, and changes in the Fund's rules to allow `genuine' non-banking financial companies also to provide credit for modernisation programmes.

In addition, the package introduces a new group workshed scheme for powerloom weavers, under which 25 per cent of cost of construction would be borne by the Government, with an extra provision that projects under the scheme could be taken together with the Textiles Infrastructure Development, through which critical infrastructure requirements could be created with financial assistance up to Rs. 20 crores per project.

The package for integrated textile mills, on the other hand, addresses the problems faced by them because of the high cost of servicing capital loans taken before the introduction of TUFS in 1999, through a debt restructuring process and by allowing banks and financial institutions to offer credit at an interest rate of 8-9 per cent as against the prevailing 15-16 per cent.

Under the new scheme, which would have a tenure of five years, accumulated liquidated damages and penal interests of the units would be waived, while accumulated interest liabilities would be frozen and converted into zero coupon bonds, payable after five years either at one go or in instalments as negotiated by the lender and the borrower.

To facilitate banks and other financial institutions participating in the scheme, they would be permitted to access external commercial borrowings for five years and allowed to convert rupee term loans into foreign currency loans.

The scheme would, however, not be applicable to all mills. Only units, which were not in a good shape but at the same time held promise of revival would be eligible. For this purpose, the units would be assessed for their techno-economic viability through designated technical agencies. The units eligible for the scheme should have positive earning before interest, depreciation, tax and amortisation in three out of the last five years and its post-restructuring debt service coverage ratio should be at least one to 1.33.

Announcing the packages, the Union Textile Secretary, S. B. Mahapatra, and Secretary (Banking), N. S. Sisodia, said in case the debt equity ratio was not up to the mark, the promoters could write down the equity. A personal guarantee by the promoters, as in the steel sector, would be a pre-condition for restructuring and the Reserve Bank of India would consider classifying such restructured accounts as `standard assets'. The scheme is expected to benefit about 350 to 400 mills.

In all, there are about 1,800 mills and the total exposure of financial institutions to the sector is estimated at Rs. 16,000 crores.

Of this, about Rs. 6,000 crores pertained to units that were in good health, and about Rs. 4,000 crores to those units that were totally sick.

In other words, the scheme would address an exposure of about Rs. 6,000 crores. Both packages would come into effect from September 15, they added.

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