India's Minister of State for Textiles, Smt Panabaaka Lakshmi, said on March 26, in a written reply to a question in Lok Sabha, that out of the 287 textile companies listed on the Bombay stock exchange, 122 companies have reported net losses in the first quarter of 2011-12 and 166 companies have shown poorer results compared to previous year.
Citing information from the Confederation of Indian Textiles Industry, she said that many companies are finding it extraordinarily difficult to repay term loans and finance working capital, and may default on loan repayment, following the immediate repercussions that the highest price volatility in cotton prices in the past 150 years followed by a collapse in April, 2011, had in the domestic market. Cotton yarn production was down by 15% and fabric production was down by 19% in the April-October, 2011 period, compared with the previous year. As the price decline came suddenly in the month of April, 2011, textile mills faced with high priced cotton inventories could not pass through the prices into yarn and fabrics. This led to a slowdown in production and reduced utilization capacity.
Smt Lakshmi informed that the Ministry of Finance of India constituted a committee under the chairmanship of Shri MD Mallya, Chairman of Bank of Baroda, for examining the textile restructuring proposals. The committee identified a sizable exposure to the textiles sector of Rs146,885 crore (1 crore equals 10 million). The report of the committee recommended a restructuring package that sought relaxation in prudential norms by Reserve Bank of India (RBI) for banks to restructure working capital and term loans.
The minister of state revealed that the proposal was submitted to and examined by RBI, which advised that banks are free to restructure any account, whether standard, sub-standard or doubtful as also more than once, provided the financial viability is established and there is a reasonable certainty of repayment as per the terms of the restructuring package but clarified that it was in favor of relaxing its prudential guidelines on restructuring of advances, provisioning norms, risk weights, etc, for any specific sector or industry.
She added that RBI has recommended to the Indian government to undertake a stress study of the textile sector.
Lok Sabha, or the House of the People, is the lower house of the Parliament of India.