Finance Minister Jaswant Singh is likely to announce a debt restructuring fund for the textile sector in the Budget for 2003-04. The fund, expected to be in place for up to five years, will start with an initial corpus of Rs 1,000-1,500 crore (Rs 10-15 billion). This will be beefed up to Rs 5,000 crore (Rs 50 billion).

The proposed fund will be in addition to the existing Textile Modernisation and Upgradation Fund managed by the Small Industries Development Bank of India.

"The fund will be in the nature of an asset reconstruction company exclusively for the textiles sector, but we do not want to set up a separate company because the fund will be in operation for 3-5 years," a government official told Business Standard.

The fund was proposed by the textiles ministry and is expected to help over a third of the textile units in the country. The finance ministry circulated the plan to banks and financial institutions for their comments.

The government will provide the seed capital and the banks and institutions will issue bonds and raise foreign currency debt to supplement the corpus.

The cost of funds could work out to around 5.5 per cent with foreign currency loans available at around 3 per cent and the coupon on bonds being in the region of 6.5-7 per cent.

"Assistance will be made available to textile companies at slightly under 9 per cent rate of interest, leaving a reasonable spread for banks and institutions that participate in the debt restructuring exercise," the official said.

Only viable units will be eligible to access the fund and their viability will be determined by the lenders. Even units registered with the Board for Industrial and Financial Reconstruction will be eligible but if the banks are of the opinion that the units are not viable they will have to be wound up.