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| Banks get RBI nod to recast loans to debt-strapped airlines |
| Newswire18 / Mumbai Sep 09, 2010, 00:22 IST |
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The Reserve Bank of India (RBI) has allowed banks to help debt-strapped airline companies, on a case-by-case basis, by restructuring or re-scheduling loans given to them, top central bank official and senior bankers said on Wednesday.
 Shares of Jet Airways ended flat and Kingfisher Airlines closed relatively flat as the market had already priced in the development. SpiceJet was an exception, closing up nearly two per cent higher. O P Bhatt, chairman, State Bank of India (SBI), an entity with Rs 3,000 crore in loans to the aviation sector, on Wednesday said RBI had agreed to let banks reschedule loan servicing by airlines, subject to certain conditions.
RBI Deputy Governor Usha Thorat had said earlier on Wednesday that the central bank has “communicated” whatever it had to “communicate” to the banks.
She refused to provide details of the instructions given to banks.
“The communication is that RBI has allowed in the case of the aviation sector, as a special case by the virtue of the powers vested in them, that the banking industry could, on a case-by-case basis, subject to the guidelines and parameters given by the RBI, look to see how these industries could be helped via rescheduling, restructuring, etc,” Bhatt said.
The consortium of banks and airlines were in talks on ways to ease the burden, Bhatt told reporters on the sidelines of a conference on banking.
“Companies will have to bring in equity and banks have to see how they can reschedule or restructure it... This process is on,” he said.
Many banks were not forthcoming on their plans for restructuring loans to the aviation sector, estimated by analysts at Rs 50,000 crore.
Airline companies have consistently requested banks to restructure their loans. Jet Airways had a debt burden of Rs 13,500 crore as on June 30 and had to annually repay around Rs 1,000 crore for the next three years, while Kingfisher Airlines had a debt of around Rs 6,000 crore.
Kingfisher has appointed SBI Capital Markets Ltd advise it on debt restructuring.
Jet has sought RBI’s nod to raise Rs 750 crore via low-cost external commercial to repay Rs 3,200 of rupee loans and use the rest to meet operational expenses.
Banks have been wary of employing the corporate debt restructuring mechanism as it involves 75 per cent of lenders to a borrower arriving at a consensus, and had asked RBI to allow recast of airline loans without classifying them as non-performing assets.
RBI’s move would help provide relief to banks as they would not have to classify airline-sector loans as non-performing assets (NPAs), giving them an opportunity to contain the growth of NPAs, while airlines get some breathing space to repay their loans and are not compelled to raise costly debt to continue operations. “The airline industry is visibly going through a phase of return to growth, but it will take some time. Some special concessions must be provided to the industry at the moment to help their recovery,” P R Kalyanaraman, executive director of Federal Bank said.
The market has been abuzz with talk that Bank of Baroda, SBI and Bank of India are facing severe stress on their exposure to the aviation sector.
Bank of India Executive Director M Narendra said the bank had lent around Rs 4,000 crore to airline companies.
“We have not even one NPA or restructuring in our over Rs 3,000 crore lending to airline companies,” Bank of Baroda Chairman and Managing Director M D Mallya said. Airlines also get some breathing space to repay their loans and also as they are now not compelled to raise further debt at high rates to continue operations.
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