With hopes of revival gradually fading for beleaguered Jet Airways, banks are understood to be moving to strengthen their collateral so that if recovery proceedings are initiated, their own chances of recovery are better.
Domestic lenders are considering paying off US EXIM Bank ₹400 crore in order to get first charge of Jet Airways’ five aircraft. Lenders have an exposure of ₹11,261 crore in the airline.
“Banks are trying to strengthen their security. Jet Airways owns five aircraft that have been financed by US EXIM on the back of a stand-by letter of credit issued by State Bank of India. US EXIM currently has first charge over these aircraft.
“Now, the plan is that the consortium of banks will take over US EXIM’s exposure, which is only about ₹400 crore. So, the security of five aircraft will be available, which will be more than ₹1,500 crore,” said a senior banker aware of the developments.
Greater exposure
Once US EXIM’s dues are paid off, SBI-led lenders will have first charge on the aircraft.
“This will strengthen our security to a great extent. SBI wants the other banks to take a call on it. They will be sharing the process note and we will have to get the approval of our top management.
“If other banks are not participating in paying off US EXIM, SBI is expected to take the exposure. The only thing is that the other banks will have to give a no-objection certificate for that,” explained the banker.
Since good security will come in, banks may not negate the proposal of funding the airline.
A senior SBI official said discussions are on regarding strengthening the security.
“There is no conclusion on it so far. It is being explored from the legal compliance point of view as it is the only security that the airline has,” he added.