A consortium of 19 public sector banks could look at conversion of their loans worth about Rs 10,000 crore to Air India into equity. If the proposal goes through, then, as much of 40 per cent of Air India equity could be held by the consortium of public sector banks.
The proposal, which is in its initial stages, needs to be approved by the boards of each of the banks and the Union Cabinet before it is finally put into action, a process that could take up to six months. The implementation of the proposal will help de-stress banks’ loans and is being looked at as a win-win situation for both Air India and the banks, as not only will it help the state-owned airline rework its outstanding funds with the banks but it will also help the banks as stakeholders, who can participate at the board level in AI’s decision-making.
This route has been prompted by the Reserve Bank of India coming out with S4A guidelines, which look at ways and means of providing sustainable restructuring for financially stressed companies. The new guidelines allow conversion of outstanding debt into sustainable and non-sustainable debt with non-sustainable debt being converted into equity. The RBI allows this if a majority of the lenders, who hold nearly 75 per cent of the value of the debt, get approval from their respective boards for the proposal to go through.
State Bank of India, Bank of India, Bank of Baroda, Punjab National Bank, Central Bank of India, Oriental Bank of India and Canara Bank are among the banks which are part of the consortium examining the proposal, a senior AI official who declined to be named said.
Rejecting the theory that this was the government’s way of looking at divesting its stake in Air India, another airline official said, ``This is broad-basing the equity base of the airline. Besides, the Government is a shareholder in the banks and in Air India, so what is wrong if a stakeholder owned by the Government owns equity in AI?”
Sources indicated that this method had been used to restructure the debts of several private sector companies, including Essar Steel.