RBI allows borrowings of around $1 bn through ECB route for aviation sector

The government yesterday said it expected the Reserve Bank of India (RBI) to notify the budget announcement of allowing the cash-strapped Indian civil aviation sector to borrow around $1 billion in external loans for a period of one year within seven days.

"RBI is expected to issue a relevant circular or notification giving effect to the aforesaid budget announcement within seven days," the finance ministry said in a statement.

While presenting the Union Budget 2012-13, finance minister Pranab Mukherjee had said, "To address the immediate financing concerns of the civil aviation sector, I propose to permit external commercial borrowing (ECB) for working capital requirement for the airline industry for a period of one year subject to a ceiling of $1 billion."

ECB, a financial instrument is used to facilitate access to foreign funds by Indian corporations and public sector undertakings.

The high cost of aviation turbine fuel and sluggish market conditions had heavily bled the domestic airline sector hitting the three listed players - Jet, Kingfisher and SpiceJet - hard in the third quarter of 2011-12.

While the airlines have been allowed by the government to directly import jet fuel as actual end users thus avoiding the added tax (VAT), which ranges from 3 to 33 per cent, according to airlines insiders urgent infusion of funds for working capital was urgently required.