One of the biggest areas that has weakened the recovery of the industry is the loss in liquidity, as businesses struggle to get back on their feet. The erosion of equity over the last 15 months has been significant and the mountain of debt that many companies in the fashion supply chain have, is hindering a vigorous recovery. Trying to give relief, the Government has offered some initiatives as a means to survive, but these are temporary measures and will come to an end, as the time span of such support is already defined. Many economists predict that short-term patch-ups will only go a small way to revive the industry and the real recovery will take several years.
Highlighting the current liquidity crisis in the industry, a recent report by Small Industries Development Bank of India (SIDBI) and Centre for Research in International Finance (CRIF) claims that the market worth of the industry is US $ 136.8 billion in 2020, while in 2019, the market valuation of the industry was US $ 140.4 billion, which indicates a decline of 2.6 per cent. Hence, the loss in business and slowdown of markets is very evident.
Drop in credit availed
As per the report, the availed credit by the textile industry as a whole stood at US $ 21.8 billion (Rs 1.62 lakh crore) as of December 2020. What is noteworthy is that there has been a Y-o-Y decline of around 20 per cent in credit availed, all in the credit offtake in the working capital constituting around 40 per cent of total credit offtake, while 47 per cent was the term loan component, indicating that businesses were largely inactive since the pandemic forced markets to lockdown in March 2020, bringing the economy to a near standstill.
Though business was disrupted across the world, it was most evident in the export segment which recorded a 25 per cent Y-o-Y decline in credits availed. A good sign though is that Nonperforming asset (NPA), which is a big challenge to the Indian economy, stood at 16.92 per cent(in December 2020) lower by 8 per cent than December 2019. The NPA was 29.59 per cent in September 2018.
Big/corporate players are major defaulters!
The bigger companies in the textile value chain are largely looking at private banks for their credit needs, which is quite evident from that fact that though private banks share in total loan imbursement to the industry is just 23.49 per cent, but when it comes to the value, private banks have share of 40.54 per cent of the loans. In December 2019, larger corporates had outstanding worth Rs. 94,000 crore with delinquency of 36.58 per cent, while in December 2020, the outstanding was Rs. 64,000 crore and the delinquency was 22.88 per cent.
Textile companies’ credit needs
|Micro||20 K Cr.
|20 K Cr.
|18 K Cr.
|Small||32 K Cr.
|33 K Cr.
|30 K Cr.
|Medium||32 K Cr.
|34 K Cr.
|32 K Cr.
|Mid-Corporate||18 K Cr.
|21 K Cr.
|18 K Cr.
|Large Corporate||91 K Cr.
|94 K Cr.
|64 K Cr.
|Grand Total||193 K Cr.
|202 K Cr.
|162 K Cr.
(Figures in crore is portfolio outstanding and percentage is delinquency of the segment)
Credit to small and medium players
As the industry is dominated by MSMEs, it is no surprise that the report claims that 95 per cent of overall number of loans (credit volume) in the textile industry and around 50 per cent of the overall amount of loans (credit value) to the sector is concentrated in the MSME borrower segment. As of today, public sector banks are biggest source of loan for the industry with 62. 61 per cent share (volume) and 36.54 per cent share in value. It is obvious that while the bigger organisations prefer private banks for their credit needs, most SMEs are still relying on public banks, as they are deemed to be safer loan options.
Credit analysis of various textile hubs
Interestingly, credit behaviour differ in different textile hubs, with 80 per cent of the overall credit portfolio being in the top 13 textile and apparel regions. Maharashtra, a major textile centre, has the largest portfolio at 25 per cent of the overall country book size. This state has credit portfolio of Rs. 40,400 crore which is 31.73 per cent of total credit portfolio of Indian textile and apparel industry.
The state has textile and apparel hubs like Mumbai, Ichalkaranji, Bhiwandi and Malegaon. Mumbai region has credit portfolio of Rs. 36,760 crore and Pune- Kolhapur region has Rs. 2,073 crore. The region employs 0.20 million people and is a centre for yarn, fabric and apparel, both for the domestic and international market.
Second in line is Tamil Nadu with a credit portfolio of Rs. 22,300 crore. Out of its various hubs, Tirupur-Coimbatore-Madurai region has a credit portfolio of Rs. 20,760 crore and Chennai- Kancheepuram region has Rs. 1051 crore. Both of these regions of Tamil Nadu generate employment of around 2.12 million.
Fact remains that the maximum credit portfolio of a particular region has nothing to do with employment as the report claims that Maharashtra’s leading region has 2.5 per cent share in employment while Tamil Nadu which has Rs. 18,100 crore less credit portfolio compared to Maharashtra, has much higher employment than Maharashtra.
The example of Karnataka is also a good example in this regard as the state has credit portfolio of Rs. 4900 crore which is less than even other textile and apparel production-based states like West Bengal, Delhi, Punjab and Rajasthan, but Karnataka’s Bengaluru-Mysore region provides jobs to 3.79 million which is highest among all the textile and apparel-based states.
Comparison of credit portfolio of various states and employment generated
|State||Credit portfolio (in Cr.)||Hubs of the states and credit portfolio (in Cr.)||Employment in million|
|Gujarat||21,400||Surat-11770; Ahmedabad- 9120||0.30
|West Bengal||8,800||Kolkata 8,777||0.22
|Punjab||7,600||Ludhiana-Amritsar- Jalandhar 7,560||0.13|
|Rajasthan||5,100||Jaipur-Bhilwara – 5,130||0.13|
|Maharashtra||40,400||Mumbai, Ichalkaranji, Bhiwandi and Malegaon; Mumbai – Rs. 36,760 crore and Pune- Kolhapur region – Rs. 2,073 crore.||0.20|
|Tamil Nadu||22,300||Tirupur-Coimbatore-Madurai – Rs. 20760 crore; Chennai- Kancheepuram – Rs. 1051 crore||2.12
Uttar Pradesh also has credit portfolio of Rs. 4,600 crore and Haryana worth of Rs.3,700 crore.
In the above mentioned states and particular cities or cluster, Y-o-Y change in the credit portfolio for the industry as a whole was maximum in Kanpur region (UP) (-42 per cent) followed by Delhi-NCR (-40.6 per cent). Tirupur (TN) region saw change of only -7.4 per cent while Ahmedabad (Gujarat) which has many big mills saw a Y-o-Y change of -23.3 per cent.
When comparing delinquency rate, Ahmedabad and Tirupur-Coimbatore-Madurai recorded the lowest proportion at 8.24 per cent and 8.6 per cent respectively, compared to the overall delinquency rate of 16.4 per cent in the textiles sector. Delinquency rate was maximum in Kanpur region at 81.99 per cent.
Birdseye view of Textile value chain
- In 2020, the market size of the textile industry was estimated to be worth US $ 140.4 billion
- Domestic consumption accounts for around US $ 100 billion and exports for around US $ 40.4 billion, the remaining US $ 3.8 billion is generated by the handicrafts segment which has been clubbed with the textile industry for long
- The fibre, yarn and fabric segment constitute the largest chunk of the textile industry at US $ 39.5 billion of which the technical textile segment is a growing domain accounting for US $ 19 billion
- The apparel segment is worth US $ 16.1 billion and the Home textile is at US $ 7 billion