RBI raises risk weight on restructured airline loans

The Reserve Bank of India (RBI) has increased the risk weight on restructured loans for the airline industry, requiring lenders to set aside additional capital to reflect the state of a sector that is weighed down by losses and debt.
The central bank has directed a consortium of banks, led by State Bank of India (SBI), the nation’s largest lender, to assign the loans a risk weight of 150%, increasing it from 100%.
The order has significant implications for the banks. Under current norms, banks in India have to maintain a capital adequacy ratio, expressed as the ratio of capital to risk-weighted assets, of 9%, meaning they have to set aside Rs.9 for every Rs.100 they lend.
Once the risk weight is raised from 100% to 150%, they will have to set aside Rs.13.5 of capital on each Rs.100 they lend, raising the cost of the restructuring exercise for the banks.
In August, RBI gave its go-ahead to SBI to restructure the debt of the airline industry. SBI is leading a 13-bank consortium to restructure the loans of the industry.
SBI has exposure of about Rs.3,000 crore to the airline industry, according to the bank’s chairman O.P. Bhatt.
IDBI Bank Ltd has exposure of Rs.3,500 crore; Bank of India and Bank of Baroda have exposure of around Rs.4,000 crore and about Rs.3,500 crore, respectively.
27/09/10 Baiju Kalesh/Live Mint

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Categories: Indian Aviation- In General Sep 2010