AI may seek Cabinet nod for interest rate cut

This may come as yet another shock to beleaguered Air India (AI): its proposal seeking a ‘letter of comfort’ from the government to reduce its annual interest payout cannot be cleared at the finance ministry level. It will need Cabinet clearance.
Air India has been seeking to bring down interest rates by about 300 basis points (100 basis points make a percentage point) for its debt burden of close to Rs 17,000 crore on which it currently pays an interest rate of 11%.
But now that such proposals need the cabinet nod, AI may find it rather difficult to improve its bleeding balance sheet anytime soon.
Earlier this month, the civil aviation ministry had approached the finance ministry, seeking a letter of comfort in the hope that such a missive would convince at least state-owned banks to lower interest rates.
The carrier currently pays Rs 2,000 crore in interest alone per year.
Official sources said such a letter is not a sovereign guarantee.
“Banks need some sort of a guarantee to lower interest rates substantially. And for any guarantee, the proposal will have to be cleared by the Cabinet.”
Pointing to AI’s worsening finances, sources said that from Rs 1,000 crore in October 2009, vendor dues have almost trebled to Rs 2,700 crore.
22/02/10 Sindhu Bhattacharya/Daily News & Analysis

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Categories: NACIL Feb 2010