RBI grounds AI's bond hopes

The Reserve Bank of India (RBI) has refused to convert Air India's Rs 18,000-crore debt to statutory liquidity ratio (SLR) bonds.

“We would not consider any such proposal (giving SLR status),” said Governor D Subbarao on Tuesday.

Lenders of the cash-strapped airline had given a proposal to convert its Rs 18,000-crore debt to bonds as a part of the restructuring process. The government guarantees the principal and interest for SLR bonds and, hence, there are no provisioning requirements against them.

Earlier in the day, State Bank of India Chairman Pratip Chaudhuri said the banks were considering three options to convert Air India's debt, and SLR status was one.

“SBI Caps will have to submit the proposal to the government, which if accepted, would be sent to RBI for approval,” Chaudhuri said.

Air India has a total debt of Rs 43,000 crore, of which bank loans worth Rs 22,500 crore are to be restructured. Bankers had agreed to the deadline of January 31 for completing the debt recast.

It was proposed that 60 per cent of the loans be converted into long-term ones to be repaid over 15 years, and the balance be converted into cumulative redeemable preference shares with dividend of eight per cent. The plan was rejected by banks.