Faced with multiplying losses due to falling global demand for apparels, banks have started taking a tough stand against domestic textile mills, resulting in apprehension of a working capital crunch in the coming months.
According to a report by the Confederation of Indian Textile Industry (Citi), the sector lost around Rs 11,000 crore in the past three-four months due to erosion in stock value. Stocks of yarn, fabric, hosiery items and readymade garments have multiplied in factories and pipeline inventories dried due to traders’ reluctance on new purchases. Consumers, especially in the developed countries where India finds most of its apparel exports, also prefer to postpone fresh buying, amid economic uncertainty. Spinning mills had invested about Rs 40,000 crore during the past 10 years in capacity building and modernisation. This means they would require to pay around Rs 5,000 crore per annum as repayment of the principal amount, in addition to a hefty interest payment of another Rs 2,000 crore. Thus, Rs 7,000 crore is due to be paid by spinning mills to banks during the current year. The other segments in the value chain also have huge repayment commitments.
“With losses amounting to over Rs 11,000 crore, textile units have eroded their working capital significantly and are not able to meet their obligations for repayment of loans and interest. To avoid large numbers of accounts in the sector becoming non-performing assets and units getting closed across the country in a matter of months, it is essential to announce a relief package for the textile and clothing industry immediately, said D K Nair, secretary general of Citi.
BANKS CONCERNED
Admitting the rising risk of loan default from the sector, a senior State Bank of India official said Europe, a key market for Indian textile exports (garments), is not showing any signs of coming out of crisis. This has meant cancellation orders. Besides, a rise in input costs such as in labour is taking away competitive advantage from Indian textile units which produce goods for other brands. “Thus, a bleak market scenario and loss of competitive edge has hit loan repayment capacity and led to deterioration in asset quality. The small and medium size garment-making units, with turnover between Rs 100 crore and 500 crore, are most vulnerable. Their business model (read exports focus) does not look viable,” he said.
According to Sanjay Jain, vice president of the West Bengal Hosiery Manufacturers Association and joint managing director of TT Ltd, “The pipeline inventory has completely dried up. Traders and retailers would start fresh purchases by the next month-end. Meantime, mills will surely face a working capital problem for the next phase of growth, as banks may be reluctant to get back the pending payment.” For the current downside in the textile industry, a senior Bank of India executive said, “The textile industry is a little under stress. Units are holding large inventory. There has been large cancellation of orders and rise in input costs.”
