BANKING
| RBI issues norms for airlines raising ECB for working capital Wed, 25 Apr 2012 00:09:55 +0530 |
| Business Standard Economy Policy News The Reserve Bank of India (RBI) has issued the details on its announcement of last Thursday allowing airline companies to tap external commercial borrowing (ECB) for working capital needs. The overall ECB limit for the sector is $1 billion and for an individual company, $300 million, RBI said on Tuesday. Finance Minister Pranab Mukherjee’s budget speech had said Indian carriers would be allowed to borrow for working capital from foreign banks. Airlines have welcomed the move, as it could make available loans at cheaper interest rates. However, analysts are cautious whether airlines would be able to, considering their troubled financial health. RBI has mandated that a company should raise this foreign debt within 12 months. The minimum average maturity can be three years. “ECB will be allowed to the airline companies based on cash flow, foreign exchange earnings and its capability to service the debt,” it said. Companies may also raise such debt to refinance rupee loans from domestic banks. Government-owned Air India has floated an ‘invitation of offers’ for raising funds through the ECB route. It is seeking to raise this for at least a year at either a fixed or floating rate, according to the offer document. Banks have been asked to ensure the company utilises only foreign exchange for repayment of the foreign debt and does not access Indian markets. The aviation sector has seen rising stress with Kingfisher Airlines, and AI facing restructuring of debt due to various operational issues. Other airline companies like Jet Airways have been facing trouble on tax payments. Banks have already declared loans to Kingfisher Airlines a non-performing asset. AI loans have been recast following government intervention to smoothen the process. |
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