The government has allowed the airline industry to avail of external commercial borrowings (ECB) to meet working capital requirements, including capacity expansion, providing airlines like Kingfisher, hit by high operating costs, especially on account of high fuel costs, with an extra financing window.
The government, however, has put an overall cap of $1 billion on external commercial borrowings for the entire civil aviation sector.
For individual airline companies the limit would be $300 million. This limit can be availed of either in a lump sum or in tranches, depending upon the utilisation of the limit during the year when the facility is made available.
The Reserve Bank of India would consider ECB proposals of individual companies, under the approval route, based on the parameters such as cash flows and the capacity of individual companies to repay these loans from their foreign exchange earnings.
In order to increase access to ECBs, RBI would consider relaxation in the average maturity period for ECBs above $20 million from five to three years.
This policy decision will provide an additional source of low-cost capital to the airline industry and help them tide over their present financial crunch, an official release said today.
RBI is expected to issue a notification giving effect to this within 7 days.
In order to alleviate the immediate financing concerns of the civil aviation sector, finance minister Pranab Mukherjee had, in the budget for 2012-13, proposed to allow companies in the aviation sector to avail of ECBs for a period of one year for working capital/refinancing of outstanding working capital rupee loans.