RBI may extend period for banks to classify aviation sector assets

Mumbai: After mutual funds (MFs) and non-banking finance companies (NBFCs), now it is probably the turn of the aviation industry to get succour from the Reserve Bank of India (RBI).
With banks apprehending large-scale defaults in the aviation sector, RBI is examining data from all lenders regarding their exposure to it.
According to sources close to the development, the study is aimed at providing some relaxation to banks in lending to the sector without worrying about defaults. Sources said that banks with considerable exposure to the aviation sector have met RBI officials and apprised them of the problem.
It is observed that public sector banks are mostly exposed to the aviation sector, besides one or two major private sector lenders. The airline industry is reportedly facing high debt burden, which could turn bad as a consequence of a slowdown in air traffic and high oil prices. At present, the domestic air traffic is reportedly at its five-year low. One of the options under consideration of the regulator is to extend the number of days for the banks to classify an asset as default.
Right now, a loan becomes default if the dues remain unpaid consecutively for two quarters, or 180 days. The period could be extended to one year or more in order to avoid an increase in the level of non-performing assets (NPAs) on bank books. Asset classification norms relate to the period in which banks classify their loans and advances as standard or performing assets and non-performing assets.
19/11/08 Anindita Dey/Business Standard

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Categories: Indian Aviation- In General Nov 2008