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| RBI allows banks to restructure airline loans without NPA tag |
| BS Reporter / Mumbai Sep 10, 2010, 00:11 IST |
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The Reserve Bank of India (RBI) had allowed banks to restructure loans of airline companies without reckoning them as non-performing assets (NPAs), State Bank of India (SBI) Chairman O P Bhatt said.
“They (loans to airline companies) are not non-performing assets as of now. This (RBI guidelines) will allow us to restructure without classifying them as NPAs. This is something similar to in 2009, when RBI had permitted restructuring.”
Following the global financial crisis, RBI had allowed banks, as a one-time measure, to restructure loans without classifying them as NPAs. Normally, when a loan is restructured, banks have to classify it as sub-standard and make suitable provisions. SBI, the country’s largest lender, has an exposure of Rs 3,000 crore to the airline sector. Bank of India (BoI) has a Rs 4,000-crore exposure.
The restructured dispensation was allowed by RBI last month. Banks will now work out loan recast with individual airlines on a case-to-case basis, in conformity with the RBI guidelines. SBI Caps, the merchant-banking arm of SBI, will formulate the restructuring plan.
“Normally, restructuring involves re-scheduling of loans, changing interest rates and converting some loans into equity,” Bhatt said. As of March 31, Air India had about Rs 40,000 crore debt, while Kingfisher has a debt of Rs 6,000 crore. According to analysts’ estimates, total loans which need to be restructured come to about Rs 50,000 crore.
Jet Airways had a debt of Rs 13,500 crore as on June 30 and has to annually repay around Rs 1,000 crore for the next three years. Jet had sought RBI’s nod to raise Rs 750 crore via low-cost external commercial loans to repay Rs 3,200 rupee loans and use the rest to meet operational expenses.
PCR norms
Bhatt said the bank would have to provide Rs 3,000 crore to meet the 70 per cent provision-coverage ratio (PCR) norm mandated by the regulator.
SBI, which would have to meet the norm by September 2011, might not make the provisions uniformly over every quarter.
“We will do it quarter by quarter. We will comply with what the regulator expects from SBI. But every quarter our results are not uniform. So, we are doing an exercise in the bank. If you look at our profit, which is Rs 9,000-10,000 crore, and if you look at the existing provisioning requirement, which is about Rs 3,000 crore, it’s doable,” Bhatt said.
RBI had allowed SBI to meet the norms by September 2011. RBI had asked all banks to achieve 70 per cent PCR by September 2010. ICICI Bank has also received an extension.
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