The textile sector emerged as the biggest defaulter of banks when its non-performing loans (NPLs) reached about Rs100 billion as reported by the State Bank in its recent report.

The textile sector, which was bitterly criticised by the State Bank for its growing NPLs, appeared as the biggest defaulter despite higher consumption of cotton and increasing exports.

The combined NPLs of manufacturers of textile and manufacturers of apparel, readymade garments and dressing reached Rs99.561 billion till December 2009. The NPLs figures were compiled from all banks and Development Finance Institutions (DFIs).

Spinning sector was the highest defaulter of Rs47.596 billion, while its loans worth Rs4.346 billion were rescheduled.

The weaving sector's NPLs reached Rs11.933 billion and finishing units of textile sector's defaults were Rs18 billion.

Further details show that manufacture of made-up textile articles default reached Rs4.460 billion. The State Bank reported that the writeoffs of the textile sector rose Rs4.893 billion till end last year.

In its earlier report in March, the State Bank had expressed surprise over high rise of infected loans of the textile sector, especially when the demand was high and cotton witnessed a bumper crop. The consumption of textile sector did not drop and output looks stable as the exports earnings remained intact.

It was State Bank's prime concern that the few corporate sector borrowers were in a position to shake up the banking industry as they were the real huge borrowers.

Textile being the largest sector and biggest earner of foreign exchange is the largest borrower of the banking industry.

The just-ended fiscal year 2009-10, witnessed a growth in the textile sector and improvement in its exports despite recession in Europe and United States, the two major destinations for Pakistani textile exports.

The overall default of the financial institutions had reached Rs432 billion in March this year, which has further increased to over Rs440 billion.

Bankers and analysts viewed the default situation relatively better in the second half of the outgoing fiscal year as the pace of default was slowing down.

The amount of default is so huge that banks have been doing provisioning against it and compromising over the profitability.

However, the biggest sufferers are the depositors, who get negative return on their deposits due to ever increasing banking default and lower profitability of the banks.

The huge default forced banks to take cautious approach towards lending, which took a bad shape when the lending to private sector was almost negligible during 2008-09 but the banks earned profit by investing into government securities.

The second half of the last fiscal 2009-10 witnessed a change in the lending pattern of banks and the private sector appeared as significant borrower from the banking system parallel to the government, which made record borrowing from scheduled banks.

The SBP had reported that in the corporate sector, textile, sugar and cement were the main sectors contributing to the increase in gross NPLs during first half of the last fiscal.

The NPLs of the banking system witnessed a relatively lower rise of Rs34.2 billion during first half of fiscal 200910 compared with a strong increase of Rs72.4 billion in the corresponding period a year earlier.