In March, to take down a series of scams involving Banks, the Government ordered that lenders must examine and report all bad loans over Rs. 50 crore in 15 days. Already grappling a staggering bad-loan pile of over Rs. 9.5 lakh crore, the intense focus on loan activities is creating added pressure on the banking sector. At the same time, balance sheets of apparel manufacturers, especially exporters are not showing good indications, which has resulted in a huge pressure on financial limits. In addition, after demonetisation and GST, funds availability is not as easy as it used to be. Apparel manufacturing is one business which requires hefty investments due to capital and labour-intensive nature and has longer rotation cycle. Garment manufacturers and exporters largely depend on the banks for their funding. However, they are now facing the heat of all these pressures.
Apparel Resources talked to various manufacturers across the country and found that there is a huge negative impact on the industry due to the current banking scenario.
Some apparel manufacturers strongly feel that the documentation system of banks, which was fairly strong earlier, has now become more stringent and banks are taking comparatively much longer in most of the processes. Even ad hoc limits take nearly three months to get executed, and a loan is something apparel manufacturers cannot expect easily now.
Though many of the big companies that boast of strong balance sheets are not facing this issue, yet the management of such companies shares the same sentiments that the banks are not cooperating with the industry. “We are not facing the heat due to our strong balance sheets, but no doubt, banks are more conservative and vigilant from past few months. The banks have to understand that a particular firm can have good business opportunities and require funding for the same. To support them, as well as to make own money secure, banks should have more staff to verify such firms, along with their scope for further growth, rather than taking a harsh stand in not supporting them,” says Rakesh Grover, MD, Groversons Group (Paris Beauty), Delhi. Groversons Group is one of the leading Indian lingerie manufacturers and mainly caters to Indian domestic market.
For some of the exporters who are facing difficulties on the export front, ‘non- cooperative’ attitude of banks is another problem for them as Davinder Sandhu, MD, Davinder Sandhu Impex, Ludhiana says, “Banks are now stricter about rating and are going for three different ratings to make sure of the credentials of a company and avoid taking any risks. They are very much concerned about the limit which is not increasing at all.” He further added that due to the change in laws in the Middle East and Dubai, buyers from these countries are now reluctant. With most of the business coming from these two markets, Davinder has seen a downfall of nearly 30 per cent in business. To put more efforts and maintain business, he needs funding, but banks are not supporting him.
For an industry that is already in stress, this new attitude of the banks has only amplified the troubles. “PSU banks are not lending money, and even private banks are not taking stressed assets. We are definitely facing the heat, and somehow managing, waiting for good days to come,” commented Vivek Lakra, Director, Superfine Knitters, Ludhiana. Superfine Knitters is one of the most respected names in Ludhiana’s apparel manufacturing industry and soon the company will touch the turnover of Rs. 100 cr.
There seems to be no quick-fix solution for this situation as industry feels that despite best efforts by individuals or even industry associations, they can’t do anything on this issue. “The Central Government should take some immediate steps in this regard as banks can’t do anything without Government instructions,” says Davinder.
However, some of the manufacturers have a different point of view on the situation. Ramesh Verma, President, Handloom Exports Manufacturers Association, Panipat is of the opinion, “Banks are forced to be strict as per the instructions from RBI and Government regulations, but we have not seen any such problem so far. After all, banks are doing business and they have to be supportive like any other business or public dealing, otherwise, it is hard to grow for them.”
Known for manufacturing quality socks for world’s top brands, Raj Kumar Sethia, MD, High Street Fashions, Jaipur also holds a similar opinion, “I have not seen any kind of issue with our bank – it may be due to our strong financial standing, and good and long-term professional relations with them. We always take the systematic way and work accordingly, and never ever delay any payments. Even though banks were ready to give us a loan, we put our expansion plan on hold for some time.”
Looking at the bigger picture, banks and the country have only one benefit in this entire revised system and that is the clean-up of bad debts. Companies which were working ‘unethically’ do not have any other option but to be transparent, as banks check their billing. There is neither scope for over-invoicing, nor for getting funds or any undue leverage.