The Reserve Bank of India (RBI) has allowed the banks to issue guarantees or standby letters of credit (L/Cs) to textile companies raising external commercial borrowings (ECBs).

The move is designed to enable Indian textile firms to compete more effectively in a global marketplace that has opened up considerably this year with the ending of the multi-fibre agreement.

Textile upturn

India's textile sector has been in decline over recent years, but since the January 2005 phasing out of the system that allowed many markets worldwide to put restrictive quotas on Indian textile exports, the sector once more finds itself globally competitive.

However, substantial credit is now needed so that the sector can increase its working capital and invest in new, up-to-date capital equipment.

Prospects good

The RBI says it is allowing banks to issue guarantees or standby L/Cs on the ECBs because of the good employment and export prospects now seen in the textile sector.

The move is meant to persuade banks to operate in an area that they have steered clear of for years, according to a senior RBI official.

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