BL: 23 FEB 2012
Banks are caught between a rock and a hard place in the case of cash-strapped Kingfisher Airlines.
On the one hand, established banking practice does not permit fresh exposure to an account which has turned bad and, on the other, banks have too much money at stake to not support the airline, said a banker.
Though there are reports that State Bank of India and Punjab National Bank have thrown a lifeline to the cash-strapped airline, the same could not be confirmed.
Two options
At a consortium meeting held last week to consider the way forward for the beleaguered airline, which is reeling under a Rs 7,000-crore debt mountain, the banks considered two options for extending a lifeline to the airline.
The first option is that the 10 banks, in whose books the Kingfisher account is still a performing asset, would extend Rs 20-crore loan (short-term) each to the airline so that its operations continue for a couple of months.
This move is intended to give the promoter breathing space to bring in equity capital via foreign direct investment.
The second option is that banks want the risk arising from fresh loan exposure to the airline to be spread evenly so that each member of the lenders consortium takes not more than Rs 10-12 crore exposure. While the Kingfisher account has become a bad loan with majority of the public sector banks such as State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and IDBI Bank, it is still a performing (or standard) asset in the books of 10 banks, including Oriental Bank of Commerce, Indian Overseas Bank, ICICI Bank, Axis Bank, IndusInd Bank and Federal Bank, said an official with one of the consortium banks.
“Most of the public sector banks have given working capital loans to the airline. In the case of these banks, the letters of credit got crystallised and the bank guarantees got invoked.
“So, the account has turned into an NPA. However, it is a standard asset in the case of 10 other banks, which have term loan exposure,” explained the official.
kram@thehindu.co.in
On the one hand, established banking practices do not permit fresh exposure to an account which has turned bad and, on the other, banks have too much money at stake to not support the airline.
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