The department of financial services, which oversees the countrys banking sector, has told the aviation ministry that since most airlines were loss-making and had minimal reserves and equity; it would be imprudent for the PSBs to provide any working capital loan or guarantees to such airlines.
The department recently communicated its views to a committee headed by civil aviation secretary Nasim Zaidi to review the problems ailing the aviation sector, and to suggest revival measures.
The committee this week received information on overall financial situation, airlines indebtedness and their working capital requirements from seven scheduled carriers.
The civil aviation ministry has suggested to the finance ministry that the banks may adjust temporary overdraft towards NPA accounts, and make available working capital to cover temporary overdraft and airlines need for cash.
In the comments, the department of financial services said: Since most airlines had minimal equity/reserves, and were loss making entities, it would be difficult for banks to provide unsecured advances.
The finance ministry is concerned about the banks loading up bad assets on their balance sheets. Growth in the non performing assets (NPAs) of assets of banks have reached a six-year high, as per RBI estimates. Repayment record of airlines has been particularly bad.
Kingfisher Airlines told the civil aviation ministry last month that without temporary bank overdraft to meet working capital, the airline would not be able to maintain normal operations. Flight operations of Kingfisher, which owes over R7,000 crore to banks, have been affected badly since.
Civil aviation minister Ajit Singh, meanwhile, said on Monday that the government would not provide any bailout to Kingfisher Airlines or to any other private carrier.
Aviation regulator Directorate General of Civil Aviation has summoned Kingfisher CEO Sanjay Aggarwal on Tuesday to explain abrupt cancellation of its flights.
The finance ministry suggested that airlines should first put forth a turnaround plan, rationalise routes & fares and bring in fresh equity.
On the basis of the revival plan put forth by the banks, their requirement or working capital would be assessed by banks, on a case by case basis, the DFS said in its comments.
The finance ministrys opposition came in the wake of banks recently approving a debt restructuring plan of R18,000 crore for Air India.
Banks also agreed to provide a fresh cash credit of R2,200 crore to the state-owned carrier.
Most airlines have been bleeding and have accumulated losses of over R30,000 crore in the past six years.