The textiles restructuring package recommended by the NK Singh committee will cost the lenders and the government over Rs 2,000 crore (Rs 20 billion) with the financial institutions alone taking a hit of nearly Rs 800 crore (Rs 8 billion) if interest rates on loans are reduced to 12 per cent.

Finance ministry officials told Business Standard that according to the calculations made by the lenders, despite the Centre's budgetary contribution of over Rs 1,300 crore (Rs 13 billion), banks and three financial institutions were estimated suffer a loss of over Rs 750 crore (Rs 7.50 billion).

According to the N K Singh Committee recommendations on the proposed Textiles Industry Reconstruction and Development Fund, banks will reduce interest rate on loans to textiles companies to 11 per cent, while in the case of FIs, the interest rate will be pegged at 12 per cent.

The government will then chip in with its contribution to bring down the effective interest rate to 8 per cent.

The nationalised banks would take a hit of over Rs 200 crore (Rs 2 billion) as a result of the cut in interest rate from the present 15 to 16 per cent to 11 per cent, while the government would chip in with Rs 650 crore (Rs 6.50 billion) to bridge the interest gap of 3 per cent on loans extended by them, finance ministry officials said.

Among the FIs, the Industrial Development Bank of India is expected to take a hit of Rs 286 crore (Rs 2.86 billion) hit due to interest rate reduction, while IFCI Ltd and ICICI Bank are estimated to sacrifice over Rs 250 crore (Rs 2.50 billion) and around Rs 100 crore (Rs billion), respectively.

The government's budgetary support to the IDBI is estimated at around Rs 350 crore (Rs 3.50 billion), while IFCI and ICICI Bank will receive Rs 215 crore (Rs 2.15 billion) and Rs 50 crore (Rs 500 million), respectively from the Centre.

The officials said some lenders had expressed reservations about the N K Singh Committee recommendation on reducing interest rate to 12 per cent since they had suggested a rate of 14 per cent.

The lenders have also expressed concern about the conversion of the overdue interest into zero coupon debentures since they had suggested it be turned into term loans, eligible to be covered under the fund, as it would affect their profitability.

Another area concern for the lenders is the waiver of penal interest and liquidate damages. Institutions like the IDBI had asked for making them interest-free, repayable after all the repayment liabilities of banks and FIs were paid in accordance with the restructuring package.