Banks have disagreed with Reserve Bank of India (RBI) on how to reduce the burden of their exposure to the stressed aviation companies. While bankers prefer referring these loans, a bulk of which shows initial or somewhat advanced signs of trouble, to the RBI?s corporate debt restructuring (CDR) committee, the central bank says instead the banks should go for a simple restructuring plan.
Restructuring is needed for banks? Rs 15,000-20,000 crore exposure to the aviation sector.
In the CDR system, the interest payments by the borrowers are only deferred. The lenders do recover the interest over a longer period of time. Also, under the system for which clear guidelines and eligibility criteria are prescribed by the central bank, there is no bar on lenders taking fresh exposure in the defaulting firms.
On the other hand, the simple debt recast model, which the RBI thinks is more suitable for the aviation sector, involves complete waiver of interest payments and makes fresh exposure difficult. This model was used by many banks in recent past to bail out companies hit by the global financial crisis.
According the bankers, taking the CDR route would protect their interests better as they don?t have to lose out on interest payment.
?If we go by the RBI?s prescription (of restructuring outside the CDR mechanism), we will lose heavily on our exposure to the aviation sector which has its own technicalities of fund raising. For example, airlines don?t have much tangible assets as they don?t own the aircraft, but use them on lease,??said a banker.
The bankers who had met on Friday on the occasion of managing committee meeting of Indian Banks? Association (IBA) have discussed the issue and have sent a detailed report of the RBI in this regard.
The banks have said that the aviation sector is already facing liquidity problem as the banks have stopped any further exposure to the sector, which may now start affecting their day-to-day to operations.
?We have asked RBI to come up with a solution quickly as some aviation companies are in serious trouble and thus would affect banks also. We have asked the central bank to allow us some relaxation while restructuring our exposures for the sector,?? said a banker who had attended the IBA meeting.
Meanwhile, RBI had asked SBI Caps, the investment arm of State Bank of India, to prepare the technical report on the proposed restructuring package for the aviation sector, particularly for four to five airlines.
Some of the troubled airlines include state-owned Air India and private players like Kingfisher and Paramount. The RBI?s CDR framework is a transparent mechanism for restructuring the corporate debts of viable entities facing problems, outside the purview of BIFR and debt recovery tribunal. The framework aims at salvaging viable corporates hit by internal/external factors other than fraud and minimize the losses to the creditors through an orderly and coordinated restructuring programme.
Speaking to FE, S Vishvanathan, MD & CEO, SBI Caps, confirmed the investment bank is working out a debt restructure plan for some of the airlines at the behest of the RBI. However, he did not specify when SBI Caps would be submit its plan to the RBI.