Sunday, October 23, 2016

LIC's rescue of Air India may hit banks hard

New Delhi: Reports suggest that the Life Insurance Corporation of India (LIC) is planning to take over a portion of the Rs 50, 000 crore debt of Air India and convert it into low interest loans. This according to reports is being done to reduce the interest burden on AI’s debt pile and make it profitable in the next decade.
LIC’s plan to convert Air India’s 10% interest loans to 7% loans would come as a breather for India’s national airline which has been battling losses and mismanagement. But a closer look at the financial information of Air India reveals that involving LIC would not only amount to juggling money within the government, but could also hit public banks hard. Most of the banks to which AI owes money are public banks saddled with astronomical Non Performing Assets (NPAs). Many of them have posted losses this year.
Air India owes the most to Bank of India. Including interest, its outstanding long term dues to Bank of India at the time when the UPA-2 government was ousted from power stood at Rs 1,640 crore. In addition short term borrowings to meet operational expenses added up to another Rs 1,000 crore. Ironically, Bank of India posted a loss of over Rs 6000 crore this year, the highest by any public sector bank. The government’s decision to transfer this loan to LIC at a lower rate of interest militates against the objective of making Air India operationally efficient in a bid to increase its profitability. This also deprives Bank of India of valuable interest income that is necessary for the bank’s survival in the near future.
23/10/16 Sai Manish/Business Standard