Banks refuse to restructure aviation loans

Banks have refused to restructure loans of airlines, estimated at over Rs 50,000 crore, via the CDR (corporate debt restructuring) mechanism, senior bankers familiar with the matter said. One of the main hurdles is that 75% of the lenders to a particular borrower have to come together to trigger the CDR mechanism, one of the bankers said. Indian Banks Association now plans to approach the RBI to allow banks reschedule loans of airlines — such as Kingfisher Airlines, Paramount Airways and Air India — without treating them as bad assets. “I can tell you upfront that it would not be a CDR because it has other implications. So, none of the airlines will be going through the CDR route. What has been taken up to the Reserve Bank is that those airlines loans should be allowed to be restructured in such a way that loans continue to be treated as performing or standard asset,” said a senior State Bank of India (SBI) executive. SBI has an exposure of Rs 3,500 crore to the aviation sector. The RBI has told banks that it could consider restructuring of the debt for aviation sector and not for any particular company. SBI chairman OP Bhatt said on Thursday that restructuring would help airlines raise fresh equity. CDR framework is timely and transparent manner restructuring debt of corporate facing problems. It covers only multiple banking accounts/syndication/consortium accounts with outstanding exposure of over Rs 20 crore. “But the CDR mechanism can be triggered only when a minimum of 75% (by value) of the lenders come forward to it. This is proving difficult,” said a banker. Banks want RBI to allow a simple restructuring of loans outside the CDR framework. Under discussion are a lowering of interest rate in the beginning and recouping it later when the airlines become financially stronger. Airlines also want to replace their high cost rupee loans with low-cost overseas loans. Airlines borrow overseas typically to buy aircraft but turn to domestic lenders for meeting working capital needs. Air India has a debt of Rs 45,000 crore, Jet Airways of Rs 14,818 crore and Kingfisher Airlines of Rs 6,000 crore. RBI has asked SBI Caps to prepare the technical report on the proposed restructuring package for the aviation sector. “Unless RBI gives a clearance, we cannot restructure for the second time as it would render these assets as bad. Since loans of many of the airlines companies have already been restructured by the respective banks, we need a special exemption from the RBI. Thereafter, loans will be rescheduled,” another banker said.

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