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Troubled lenders to bear increased provisioning of textile loan recast

The textiles units in India have been severely hit due to rising interest rates and slump in demand from Europe and have put forth various proposals for loan recast of financially troubled units. 
 
During April-September 2011, banks had referred 35 cases involving debt of in excess of Rs 24,000 crore.
 
Rating agency CRISIL (on August 30, 2012) had said that loans restructured by Indian banks may increase sharply to Rs 3,25,000 crore between 2011-12 and 2012-13. This is upward revision from the earlier estimate (April 2012) of Rs 200,000 crore by March 2013.
 
Banks are planning to restructure about Rs.16,000 crore of textile loans after the government approved the debt recast in May.
 
While carrying out loan recast of the textile sector the banks will have to classify the loan as bad asset.
 
This means that even after restructuring the debt, the banks will have to set aside money for the stressed assets as the Reserve Bank of India (RBI) is not willing to offer any special dispensation to them.
 
Under the current norms, banks need to set aside 15% of the amount as provisions when an asset is restructured for the second time, compared with 2% when a standard asset is restructured the first time. For most textile firms, it is the second loan restructuring.
 
Out of the Rs.16,000 crore, about Rs.13,000 crore are term loans and the remaining working capital loans.
 
State-run banks, mainly the country’s largest lender State Bank of India and Bank of Baroda, have major exposure to the textile sector, while the remaining is with a few private sector banks and cooperative banks.

 

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