The Union Government is considering a Moratorium of 1-2 years for the Textile Industry??!!

In an interview with ET Now, Rita Menon, Secretary Ministry of Textiles, gives her views on textile industry. Excerpts:
ET Now: Recently the textile ministry had a meeting with Indian Bank Association along with textile industry representatives to discuss possible debt restructuring and plans for the sector but nothing concrete has really come from this yet. So, what exactly is the demand for the industry and how exactly do you think textile companies will be able to cope up with the demand which currently some of the banks are demanding for?
Rita Menon: The cotton textile industry has been experiencing a gradual slide down from April 11 and a part of the reason is the fact that cotton prices last year were extraordinarily high, so there was a lot of investment in stocks. You are aware that cotton textile mills stock, cotton stocks for a duration of between two to three on an average months to six to eight sometimes, so this inventory has really been very highly valued and that along with the fall in demand both internationally and domestically experienced in the second half of 2011 has actually caused a lot of stress amongst the textile industry. So, I would not say that nothing concrete has come out because we are in dialogue with the banking sector to reset the loans for a moratorium as they wish for support relating to working capital. And the most important thing is that the assets which perhaps could have been restructured once before should not be called non-performing assets because that does not make that unit eligible for Tuf's assistance Technology upgradation fund assistance.
So, we are in a fairly advance stage with banking department and with the bankers individually and that is a reason why I have had three rounds of meetings with the bankers. And the last one was an intensive one with the trade as well on with me in the meeting. So, what is left is the agenda relating to the Reserve Bank of India and we would like to see that on the question of financial prudence we are with them and that the industry is not hurt. But let me assure you, it is not a bail out, it is only a resetting of their commitments and the interest payable would go on as before.
ET Now: What we understand is that the textile minister also has sought restructuring of textile loans and we understand that he has asked for suspension of repayment of the principal amount by the capital intensive textile units for two years from 1st of July which nearly accounts for 90% of the total industry loan. How will this restructuring helps the industry?
Rita Menon: Well a moratorium is always kind of a breather and a moratorium of two years or one year which is what the industry wants, subject to us agreeing to it, would actually be a very beneficial because for the system interest payments would continue as before. The industry has not asked us to waive the interest or to provide a financial bailout. It is only a question of supporting them because there has been a very heavy captialisation over the last two years because the textile sector has done very well over the last two years.
ET Now: How is the situation as far as working capital loans are concerned, what is the cash short fall or mismatch, do you believe the entire industry is having to deal with?
Rita Menon: Actually wearing between unit and unit I cannot say that there is a uniform one shoe fit all problem, but certain there are varying levels of commitments on the valuation of the stocks and the mark to market asset value at the moment because cotton indeed has been over Rs 6000 a quintal over the last cotton year and that actually did cause euphoria as well and it also caused a lot of pain. So, it is really because the cotton prices have crashed to almost half the level and the fact that domestic and international demand has slowed down and dried up in some cases that they are having this problem but I have been in touch with most of the units and the position after November is looking much more favourable. But for the period between April and November I do believe that there has been a lot of stress especially and I repeat especially amongst those units in Andhra Pradesh and such regions which have actually gone into and forayed into the modern textile sector for the first time. Do remember that they were cotton farmers, they moved into ginning and pressing and then they were enthused to move into yarn production and it is these guys and the heavy capital that has been deployed that has actually caused a lot of the difficulties right now that they are experiencing.
ET Now: What is the entire banking industry and do you think they are in principal ok to approach this entire textile restructuring package and do you think textile companies have enough time because most of the large and small textile players are running out of cash flows?

Rita Menon: Very naturally, a banker would be concerned about the asset quality. The banker when he does undergo lets a unit undergo a moratorium would have to have a revaluation of assets and for that year's book the bank would certainly have to do some creative thinking. What I have suggested to the banks is that they could perhaps sort of move it over three years, have the valuation of stocks amortised over three years by which time we do expect the industry to come back to normal.
ET Now: The textile sector has a total outstanding of about 80,000 to 100,000 crore of this how much is owed by the spinning segment and what is the average repayment on an annual basis?
Rita Menon: I first and foremost a 100,000 crore is an overstatement. I would not put it more than 50,000 to 60,000 crore, really when you come down to an analysis which I have asked the textile commissioner to do of which certainly 75% would be from the spinning sector. It is the spinning sector which has got to capitalise on a scale which really requires a lot of money and if there is an investment in the weaving sector or the composite sector the number of machines which could be attributed to spinning or finishing are actually much smaller. I just give you a very small example of the Raj Nagar Mill of the National Textile Corporation which the honourable minister inaugurated last Saturday and the mill has 36,000 spindles and it has 72 automatic weaving shuttleless looms so the kind of outlay on spinning and the count of outlay on a per unit of spinning is very high. So, therefore it is but natural that 75% of this overdue amount or the amount which is under stress would be from the spinning sector. But it is not to say that the ginners have not experienced stress, it is not to say that the silk sector has not experienced stress, it is not to say that the power loom weaving units are actually on a sing-song we in our plan would like to cover all aspects of the textile value chain and not leave anybody out.