RBI says airline sector to continue facing funds crunch

Last Updated: Fri, Jun 29, 2012 03:47 hrs

The bleeding domestic aviation sector is likely to continue facing funding crunch and could also be affected by prevalent policy uncertainties, the Financial Stability Report released by the Reserve Bank said today.

Stating that these factors pose a challenge to the asset quality of banks, the report said the "asset quality of banks' credit to the airlines industry came under some stress in recent periods, driven largely by the performance of some specific airlines".

The three listed airlines - Jet, Kingfisher and SpiceJet - posted accumulated losses of Rs 1,698 crore in the March quarter, with the near-bankrupt Kingfisher alone reporting a massive Rs 1,151 crore loss on account of higher fuel prices, irrational taxes and mounting airport charges.

According to the report, a sharp rise in impairments and restructuring in the sector saw the share of airlines in aggregate banking system NPA and restructured assets rise disproportionate to its share in banking sector credit.

There was significant concentration discernible in distribution of credit to the airline sector as 10 banks accounted for almost 86 percent of total bank credit to this sector, it said.

At the end of March, out of the nearly Rs 45,000 crore exposure of top ten banks to the airline industry, three-fourths or over Rs 33,000 crore were either impaired or restructured, it said, adding public sector banks accounted for a major share of these exposures.

More from Sify: