Nearly 80 per cent of Indian garment exporters to the US service small vendors. "Given their very high exposure to smaller vendors, the impact on Indian firms may be significant," Chairman of the Apparel Export Promotion Council (AEPC) Rakesh Vaid said here.

The US is India's largest market for ready-to-wear garments, which had shown signs of improvement during the second quarter of the fiscal 2009-10. These exports dropped by 3.9 per cent between July and September from a negative trend of over 17 per cent in the preceding quarter.

Of the USD 10.17 billion annual garment exports out of India, nearly USD three billion go to the US. "Most importantly... credit terms may worsen," Vaid said.

CIT is the largest factoring firm (the business of making upfront payment against receivables) to the apparel sector. It accounts for an estimated 60 per cent of factoring in the US apparel and footwear industry. As per estimates, CIT lent about USD billion to US apparel manufacturers and retailers last year.

Though the company will keep operating, "it is unlikely to be able to make the same number of loans as before," Vaid said. In one of the the biggest corporate failures in the US history, 101-year-old commercial lender CIT made its filing in the New York bankruptcy court on November 1 after a debt-exchange offer to bond holders failed.

It comes close on the heels of collapse of German retail group Arcandor in June. Arcandor owned the Karstadt department store chain and Quelle mail order firm. Vaid said AEPC has been exploring ways with sourcing agent Li & Fung to reduce losses incurred by Indian apparel exporters after Arcandor filed for bankruptcy.

Ever since the global economic recession began in second half of last year, many retailers like Steeve and Barry's along with Mervyns have faced financial blows. Pacific Sunwear, Lane Bryant, Fashion Bug and Catherines closed over 150 under-performing outlets. Foot Locker wound up 140 stores and Ann Taylor closed nearly 120 outlets, according to AEPC.

Others like Eddie Bauer, Cache, Talbots, J Jill, Gap Inc, Goodbye Levitz, Home Depot, Macy's, Pep Boys, JC Penney, Lowe and Office Depot as well scaled down operations due to falling sales, the council said.