Banks exert pressure on SpiceJet to repay dues

SpiceJet owes Rs 600 crore, mostly secured

Banks, which have an exposure of about Rs 600 crore to SpiceJet, will ask the budget airline owned by billionaire Kalanithi Maran to start repaying dues. Most loans to the airline are backed by security, including fixed deposits.

On Tuesday, the government announced a series of measures to bail out cash-strapped SpiceJet, which is in danger of having to suspend operations. Apart from fresh working capital loans from banks, the civil aviation ministry has requested public sector oil companies to give it credit for up to 15 days.

The Directorate General of Civil Aviation (DGCA) has been asked to open up bookings of SpiceJet till March 31, 2015, while airport operators have been asked to provide 15 days to the airline company for making payments.

“We have asked them to repay dues. The fixed deposits which are with the banks could be adjusted for the loans,” said a senior executive with a public sector bank.

The loans are yet to become non-performing, which means they are not due for 90 days. However, they may have reached SMA 1, that is the first level of a special mention account. A loan is characterised as SMA 1 when the principal or interest payment is overdue for 31-60 days. Banks are required to identify incipient stress in the account by creating a sub-asset category, special mention account.

Banks have been cautious in dealing with airlines after burning their fingers over a debt recast for Kingfisher Airlines. The airline was eventually grounded with Rs 6,500 crore worth of non-performing assets. Banks are in the process of recovering dues from Kingfisher Airlines.

Most lenders have ruled out the possibility of offering additional loans to the company. "Our exposure in SpiceJet is backed with collateral. Theoretically, we are not going to lose our money. But even if we lose what we have lent, we are not going to try and salvage it by providing additional loans,” a senior executive with a private bank told Business Standard.

The ministry proposed fresh working capital loans be backed by a personal guarantee of SpiceJet Chairman Kalanathi Maran. These loans will be repaid immediately after securing long-term investment for the airline, typically within eight weeks. SpiceJet may also be allowed to raise money through external commercial borrowings.

Bankers said there was no formal communication from the finance ministry asking them to provide additional working capital loans to SpiceJet.

“We are yet to receive any communication from the government. We will evaluate the proposal once we hear from them,” N Kamakodi, managing director and chief executive officer of City Union Bank, said. The bank has an exposure of Rs 100 crore net of financial collateral in SpiceJet.

Kamakodi said the bank may not be in a position to offer fresh loans to SpiceJet. “We have also offered loans to the Sun Group (promoters of SpiceJet). So we need to consider if providing more loans to SpiceJet will breach our group exposure limit,” he said.