Tamil Nadu’s textile units are facing a severe shortage of working capital. This has been caused by volatility in cotton prices, the Eurozone crisis and an extended credit period due to a liquidity crisis in the system. Since business demands more money, entrepreneurs have had to extend their credit limit. On the one side, working capital from banks has eroded and on the other the market is demanding more credit. Unable to work in this system, a large percentage of units facing higher manufacturing costs in terms of raw material, energy, and lower price realisation of their products are in a negative cycle now. The working capital shortage is felt at a time exporters of manmade fiber apparel are trying to grow their market share in the west, particularly in the American market.

Tamil Nadu’s textile clusters are populated by small factories running on bank credit. Over the years, the number of days before a bank can declare a loan asset as non-performing has come down. It used to be four quarters to declare NPA, then got reduced to 180 days, and now it is 90 days. In a business scenario where credit lines have spread, these norms are impacting businesses, especially small businesses.