India : Rs 5,000 Crore Bailout Fund For Textile Units Likely

The proposed fund will be in addition to the existing Textile Modernisation and Upgradation Fund managed by the Small Industries Development Bank of India.

“The fund will be in the nature of an asset reconstruction company exclusively for the textiles sector, but we do not want to set up a separate company because the fund will be in operation for 3-5 years,’’ a government official told reporters.

The fund was proposed by the textiles ministry and is expected to help over a third of the textile units in the country. The finance ministry circulated the plan to banks and financial institutions for their comments.

The government will provide the seed capital and the banks and institutions will issue bonds and raise foreign currency debt to supplement the corpus.

The cost of funds could work out to around 5.5 per cent with foreign currency loans available at around 3 per cent and the coupon on bonds being in the region of 6.5-7 per cent.

“Assistance will be made available to textile companies at slightly under 9 per cent rate of interest, leaving a reasonable spread for banks and institutions that participate in the debt restructuring exercise,” the official said.

Only viable units will be eligible to access the fund and their viability will be determined by the lenders. Even units registered with the Board for Industrial and Financial Reconstruction will be eligible but if the banks are of the opinion that the units are not viable they will have to be wound up.