Banks squabble over ways to rejig loans to Air India

Mumbai: Banks are bickering among themselves over ways to rejig loans to Air India, the debt-laden flag carrier. The bone of contention is the amount each bank has to set aside as provision while they restructure the debt to keep the airline afloat.
SBI Capital Markets (SBI Caps), the investment bank hired by Air India to work out restructuring, has come out with a plan that requires State Bank of India, the parent of SBI Caps, to provide the least. The proposal has not gone down well among other lenders who, under the plan, will have to make higher provisions.
Banks are sensitive about provisioning on restructured and sticky loans as it impacts their bottom lines. Air India has outstanding debt of Rs 43,000 crore, half of which is guaranteed by the government. SBI Caps has prepared a restructuring package for the balance Rs 22,450 crore.
Since many airlines, saddled with debt and operating in a fiercely competitive market, have run into difficulty due to costly oil and weaker rupee, the RBI has allowed lenders to treat the restructured loans to these companies as 'standard assets'. This worked as an incentive for banks, which have to commit lesser capital against standard assets compared to other categories of loans such as 'substandard or 'loss' assets.
24/12/11 Sangita Mehta/Economic Times

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Categories: Air India Dec 2011