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Cumbersome procedures, delays offset interest subsidy in TUF, says industry

Experts blame low RoIs for poor TUF response
Reena Mital - Mumbai

Response to the technology upgradation fund scheme (TUFS) has not been satisfactory, with a total loan disbursement of just Rs 3578.43 crore, over the last three years, as against a corpus of Rs 25,000 crore.

Government policies, and the general business environment have kept investments in the sector low. Moreover, performance of the textile industry has been dismal over the last two years, making it difficult for textile units to undertake any major investments.

There have been very few proposals from the mill sector, and whatever has come, is for fairly small amounts, to improve efficiencies, via debottlenecking, or for some small upgradation. Not many big projects have come from this sector, state sources. According to financial institutions and banks, most of the proposals have come from the knitwear sectors of Ludhiana and Tirupur, where again massive investments have not taken place, knitwear being in the SSI sector.

According to experts, one of the main problems of the industry had been high capital costs, and power costs. With the TUFS, the government has brought down the interest cost, and inclusion of captive power generation takes care of power costs too. But the industry has still not come forward for investing in modernisation.

Speaking to Express Textile, Mr R R Gosai, joint general manager, Gherzi Eastern, said, “The scheme, as is being utilised today, defeats the objective for which it was constituted, viz, for making the industry competitive to achieve the ambitious export targets set by the government. Debottlenecking and equipment balancing will not help achieve better quality, only technology upgradation can do that, and that is unfortunately, not taking place.”

According to industry sources, delays in getting the loans and the interest subsidies is preventing the industry from going in for the scheme. The industry also claims that, in a number of cases, the coopted banks are not aware of the scheme, even after three years of the scheme’s existence. A number of banks have conceded to these problems in their interface with the industry.

“No publicity campaigns have been undertaken by the nodal agencies for creating awareness about the scheme among the banks, in various parts of the country. The nodal offices of the banks have been keeping their branches updated about the scheme, but with a large number of branches all over the country, this is not always effectively done,” stated bank officials, of a number of coopted banks.

Besides, a number of banks have pointed out that communication from the nodal agency, Industrial Development Bank of India (IDBI), is not always prompt. The delays, in most cases, take place when the machine specifications are not properly met, according to banking sources. This results in IDBI asking for clarifications from the nodal offices, which in turn have to go back to the respective branches, all of which gets quite cumbersome.

As regards interest claims, banks state that delays in this case usually occur if the companies have not submitted their returns on time, “and there is usually a delay of a fortnight to a month in submissions”, they say. Besides, a change in format for interest claims by the IDBI twice within the last three years, has also caused a lot of confusion among the clients, and submissions made in old formats are rejected, they inform. (A project under the TUFS, if all details are submitted as per the required formats, could take an additional 20-30 days for clearance, as against a general loan. This is because banks have to get a clearance from the IDBI, which is not the case for a general loan.)

Besides, the textile industry is also to be blamed for some of the delays, state banks. The project reports submitted are not always complete, or made professionally. There are many rejections on this basis. Viability studies of units also take time, especially in case of the smaller units.

“These are not very serious problems for which the industry is not investing. A loan under the scheme may take just a little longer than a non-TUF loan. A number of clarifications will be sought for a loan outside the scheme too. The main reason for not investing is the unattractive returns that the industry is getting today. Besides of course, there are the labour laws which play an important part, specially in the textile industry,” opines Mr Gosai.

Mr S B Aggarwal, director, SBA Consulting, concurs with this. “An interest subsidy of six per cent will translate to an effective saving of not even one per cent in the total project cost, in case of a new project, or projects for expansion, major upgradation, etc. For balancing of equipment, where investments are only in the machinery, an interest subsidy works better, and that is what the industry is doing at present. With no returns on investment, there are very few big projects coming up.”

So, what happens to the textile modernisation efforts of the government? Say analysts, “With the existing resources, a number of bigger players, will move into value-additions, and cut production of commodity items, to cut costs. Moreover, all textile manufacturers will have to start operating at viable levels, and manufacture only what they can sell in the market. This has begun happening, and will catch on in the unorganised sectors too.”

Project proposals will now start to flow in: Corporation Bank

Corporation Bank has received six proposals for a loan amount of Rs 76 crore over the last three years, under the TUFS. According to bank officials, “Response to the scheme has not been too good till now, but that is because the government, the nodal agencies and the banks were creating awareness about the scheme. All branches of Corporation Bank are today well aware of the scheme and the procedures, and the nodal office keeps all the branches updated about the various amendments, etc to the scheme. We expect response to the TUFS to pick up now, because the preparatory work is done, and also because the industry is starting to look up now.”

The bank has not faced any undue delays from the nodal agency, IDBI. However, lending norms for the textile industry are very strict, due to the large NPAs that the banks have in this industry. Guidelines for the scheme ensure that the loans are given to units that are strong with sound financial practices.

Bank of Baroda: Avoiding NPAs

Bank of Baroda, with a textile exposure of Rs 2000 crore in Maharashtra, and an NPA of Rs 600 crore, is very careful about lending to the textile industry. According to officials, “We are very careful when lending to textile units, and conduct a thorough viability study of the projects. This poses some problems, especially in case of the smaller units, where it is difficult to identify the owner, the products, and the companies. Most of the proposals we have received are from texturising and processing units, for loans ranging from Rs 1 crore to Rs 8 crore. Project reports are not well made either, leading to quite a few rejections. The industry has to work on these aspects, if it wants to take advantage of the TUFS.”

With 14 zones, and 2,650 branches all over the country, creating awareness about the scheme and the procedures is not an easy task for the bank. But Bank of Baroda has placed more emphasis on the scheme in major textile clusters, such as Gujarat, Tamil Nadu, Rajasthan, etc.

Besides, approval of projects and interest claims does take time as the paperwork involved is quite a lot for the small units, in the unorganised sector.