Commerce minister Anand Sharma has said that the government might ask banks to restructure textile sector debt worth Rs 35,000 crore.

According to estimates, the total outstanding loans of the textiles sector are at about Rs 1.56 lakh crore, which is about 4 per cent of total bank credit. Several factors such as power shortage, cotton price volatility and rupee depreciation have affected the textile sector in the last two years. Mr. Sharma held a meeting with finance minister Pranab Mukherjee on Tuesday and discussed loan restructuring.

“The Ministry of Finance would examine in consultation with Reserve Bank of India a two-year moratorium on term-loans, special provision in non-performing assets norms to avoid asset reclassification, and conversion of working capital eroded into term loans repayable over a period of 3-5 years,” said commerce ministry.

Figures show that textiles constitute 18-20 per cent of restructured assets across banks. The debt restructuring proposal will be considered on a case-to-case basis. An inter-ministerial committee of senior officials will be formed for expeditious restructuring of loans, the ministry said.

Experts say that the move will cause net present value loss for banks as well as an increase in provisioning burden.