RBI, banks differ on restructuring of aviation loans

Mumbai: Banks have disagreed with Reserve Bank of India (RBI) on how to reduce the burden of their exposure to the stressed aviation companies. While bankers prefer referring these loans, a bulk of which shows initial or somewhat advanced signs of trouble, to the RBI’s corporate debt restructuring (CDR) committee, the central bank says instead the banks should go for a simple restructuring plan.
Restructuring is needed for banks’ Rs 15,000-20,000 crore exposure to the aviation sector.
In the CDR system, the interest payments by the borrowers are only deferred. The lenders do recover the interest over a longer period of time. Also, under the system for which clear guidelines and eligibility criteria are prescribed by the central bank, there is no bar on lenders taking fresh exposure in the defaulting firms.
On the other hand, the simple debt recast model, which the RBI thinks is more suitable for the aviation sector, involves complete waiver of interest payments and makes fresh exposure difficult. This model was used by many banks in recent past to bail out companies hit by the global financial crisis.
According the bankers, taking the CDR route would protect their interests better as they don’t have to lose out on interest payment.
02/08/10 Sitanshu Swain, Kumud Das/Financial Express

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Categories: Indian Aviation- In General Aug 2010