Air India Got Rs 2,000-Crore Loans from National Small Savings Fund In 2018

Air India received two loans worth Rs 2,000 crore from the National Small Savings Fund in 2018.

The national carrier borrowed Rs 1,000 crore each—for six months in October and for four-and-a-half months in November—at an interest rate of 8.5 percent a year, according to the airline’s response to BloombergQuint’s Right to Information queries.

The airline, saddled with more than Rs 54,000-crore debt, is on a government bailout.

Last month, the government sought Parliament’s approval for an equity infusion of Rs 2,345 crore in the airline under its turnaround plan, ruling out an immediate revival of its plan to sell the ailing carrier.

Air India, according to budget documents, will receive a total of Rs 3,000 crore in the financial year ending March 2019 from the NSSF—a pool of household investments in state-backed small savings schemes.

The interest rate of 8.5 percent for Air India’s NSSF loans is marginally cheaper than the prevailing rates for commercial borrowings. Rates on short-term loans of up to six months offered by banks to public sector companies range from 8.10-8.50 percent plus the risk spread based on how they are rated, said a banker who didn’t want to be identified.

State Bank of India’s current effective one-year lending rate for working capital loans exceeding Rs 500 crore ranges from 8.90 percent to 16.65 percent, including the risk spread. SBI’s marginal cost of funds-based rate for loans with a tenor of six months is 8.40 percent plus the spread of 0.05-1.90 percentage points.

State-run companies have a bargaining hand while seeking loans from banks as they are sovereign-backed, the banker quoted earlier said. Lenders under the Reserve Bank of India’s prompt corrective action framework favour giving loans to public sector entities because of that, the banker said.

Air India is in a difficult financial position and is availing loans to repay debt and for working capital needs, and any entity in distress will like to avail funds at a cheaper rate, according to Jitendra Bhargava, former executive director of Air India. The carrier has a good credit history as it has never defaulted on any of its loans, he said.