Banks examining options for Air India's debt recast

Bail-out package likely to be finalised next week

PTI | January 20, 2012



Bankers on Thursday explored various options including conversion of the Rs 18,000 crore loans to SLR as part of the debt restructuring of the ailing Air India carrier and may finalise the bailout package next week.

"We are looking at various instruments like SLR, long-term bonds and non-convertible debentures among others as part of the debt recast plan of Air India," Oriental Bank of Commerce Executive Director S C Sinha told reporters after the debt recast meeting here.

Conversion of loans to Statutory Liquidity Ratio (SLR), which are considered as approved security for investment, will provide comfort to the lenders.

The two-hour meeting was attended by officials from 14 banks including consortium leader SBI, Bank of India, Punjab National Bank, Bank of Baroda, Central Bank of India, and OBC.

Sinha also said that bankers would submit their final proposal to SBI Capital Markets, who is advisor to the Air India, by Saturday for a final decision.

"We are yet to arrive on a final decision. We will submit our proposal to SBI Caps by Saturday and again meet sometime next week to take a final call," he added.

Earlier this week, the lenders had rejected a proposal of cumulative redeemable preference shares (CRPS) by the Air India,+ fearing that it could bring down bottomline of banks.

In New Delhi, SBI chief Pratip Chaudhuri said that "Air India is central government owned airlines. Any lenders comfort with Air India is complete and absolute".

The government has asked the lenders to finalise the decision on Air India debt recast ahead of the meeting of the Group of Ministers (GoM) on January 31.

Another suggestion, Chaudhuri said, "we have made, whatever loan loss provisions we make, so long as they are in conformity with what RBI prescribed and prudent provisioning, that should be fully allowed as deduction for income tax.

"Today overall cap of 7.5 per cent of the total loans should be done away with. It should be made simple. It is a genuine business cost," he said.

It was mentioned that savings rate is about 32 per cent but only one third of it reaches banks. Therefore, there is a need for removal of handicaps which banks face in mobilising the deposits.

In view of the high costs of education, it was said that it will be useful if education loan guarantee scheme could be launched, bankers suggested.

Bankers also suggested that there should be a separate taxation window for pension funds and long-term funds. A demand was also made to make banks eligible entities to issue tax free infrastructure bonds.

Bankers also highlighted the requirement for special incentives for investors to invest in infrastructure bonds.

Kotak Mahindra Bank Managing Director Uday Kotak said, "We have suggested steps which support flow of domestic savings into equity specially into mutual fund, insurance, and also reduction of transaction tax on cash settled equities. That can be done by reducing securities transaction tax (STT) on cash equity."

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