Financial Daily
from THE HINDU group of publications

Saturday, May 19, 2001



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Threat of high NPA levels -- Textile processors seek debt relief fund

G. Gurumurthy


MEMBERS of modern textile processing industries, disconcerted at the continued non-performing assets (NPA) problem haunting most independent processors, favour the Government instituting a separate debt relief fund for processing industries, on the lines of the Sri Lankan Government model for the textile industries debt relief fund.

Promoters of the textile processing units, meeting under the aegis of the All-India Modern Textile Processors Association (Aimtex) here on Thursday, had an interactive session with the Textile Commissioner, Mr B C Khatua, wherein they highlighted the run ning mismatch between the high investment costs for setting up modern processing houses and low capacity utilisation phenomenon that drove most of them to the high NPA levels.

The Aimtex members, who started their projects by mid-1990s, traced the genesis of the NPA facing the modern textile processors to high cost funds, failed public issues, delayed take-off of projects leading to time/cost overruns and high import duty regi me on capital goods. After these hiccups, most of them got stuck with the difficulties in securing working capital from the bankers, who shied away from the clients after the latter failed in initial job orders that followed their commercial launches.

``While most of us today survive on the export manufacture we do on our own through garmenting, we invariably suffer losses on capacity hiring we predominantly do for merchant exporters'', pointed out the Aimtex members. Added to these, were the lack of expertise in the area of project consultancy for processing sector and gap in production and marketing. The seasonality of the garment trade is an inbuilt handicap that prevented continuous running of processing units.

The Textile Commissioner felt that there was a strong need to have diagnostic seminars between the independent modern textile processors and the financial institutions/banks so that the latter would be in a position to understand the inherent synergy bet ween the garment making and the processing industry.

Mr Khatua also held the view that a self imposed upper limit for the processing sector in the matter of funding by the FIs was called for, considering the importance the weaving/knitting and the processing industries have in the value-chain of textile pr oduction. He assured the processing sector that his Ministry would attempt on bringing the two major FIs, the Industrial Development Bank of India and the ICICI, on a common platform with them so that the revival of the finances of the modern processing units would be meaningfully taken up.

As for the difficulties experienced by the textile processors in meeting the export obligation under the EPCG licences and their grievance that the obligation levels were steeper, Mr Khatua conceded that there was a case for rationalisation of export obl igation for processing sector, given the capital intensive nature of the industry.

Processing industry should have its export obligation fixed based on the input-output ratio and accordingly the export obligation be low, the Textile Commissioner said. He cited that while the garment industry with not so high investment burden took away export benefits, the processing units with high investments and low turnover were burdened with higher obligation.

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