The domestic aviation sector is expected to continue facing liquidity crisis and will further be affected by continuing policy uncertainties, as per the Financial Stability Report released by the Reserve Bank of India (RBI). As a result, losses of some of the top airlines will pose a serious threat to the loan portfolio of banks. All these factors are likely pose a challenge to the asset quality of the banks due to underperformance of some of the specific airlines.
The top three airlines, which incurred massive losses, were Kingfisher, Spice jet and Jet Airways. The total accumulated losses accumulated by three of them were Rs 1,698 crore in the last March quarter. Kingfisher airlines alone had a loss of Rs 1,591 crore on account of high fuel price, irrational taxes and increasing airport charges.
Further as per the report, steep rise in impairment and debt restructuring in the aviation sector saw the shares of airline in total banking system NPA and restructured asset rise disproportionately to its share in banking sector credit.
There is a considerable amount of loan given to the airline sector as 10 banks accounted for nearly 86 percent of the total bank credit to this sector. By the end of March, top 10 banks have exposure of nearly Rs 45,000 crore to the airline and three-fourth of over Rs 33,000 crore have been either impaired or restructured and these losses are borne mainly by the public sector banks.
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