Airlines, power sector loans are ‘a drag on banks’

Mumbai, June 28:

Airlines and power sectors have been creating problems for banks, says the Financial Stability Report released by the Reserve Bank of India. Banks have restructured much of their advances to the two sectors.

The two sectors account for over 23 per cent of the total restructured portfolio of banks.

The central bank does not see much improvement in the near future. Policy uncertainties and funding constraints are likely to pose challenges.

The fourth quarter ended March 31, 2012 was especially bad for banks.

In that quarter, banks restructured about 12 per cent of their total loans for the airline industry.

This was the highest in over four quarters and almost three times the restructured loans for the airline industry in the quarter ended December 2011.

Only 10 banks, mostly in the public sector, accounted for 86 per cent of the total credit to the airline industry.

As on March 2012, nearly 75 per cent of the loans of banks, which have an exposure of above $10 billion (Rs 57,000 crore today) to the airline industry, were either impaired or restructured, the RBI report said.

Rising losses and debt levels in state electricity boards and shortage of fuel availability of power generation have raised questions on the ability of state electricity boards to repay loans.

Banks restructured about 11 per cent of its total loan portfolio for the power sector in the fourth quarter. In the quarter ended December 2011, banks had restructured about three per cent of their total loan portfolio for the power sector.

http://www.thehindubusinessline.com/todays-paper/tp-economy/article3582123.ece