Air India default will impact ratings of Indian banks: Moody's

Mumbai: Air India's continued troubles have now become a serious cause of worry for its lenders with global rating agency Moody's Investor Services issuing a warning that any default by the flag carrier was likely to impact the ratings of its lenders.

The consortium of lenders includes the State Bank of India, the Punjab National Bank, the Bank of Baroda, the Bank of India, the IDBI Bank, the Central Bank of India and the Oriental Bank of India, which account for 70 per cent of Air India's total borrowings.

"Recurring defaults by the airline imply that government support may not be timely, which is credit negative for Indian banks," Moody's said in a statement on Monday.

Air India received equity infusion of Rs1,200 crore this month even as it teetered on the edge of a default for the third month in a row. The government has provided only temporary solution to Air India's financial troubles, the statement said.

"Also, the support was delayed and inadequate in our view as the government allowed the airline to delay paying employee salaries and bank interest. This poses concerns and raises doubts over its willingness to provide timely support to sovereign-owned PSU enterprises."

Any default by Air India would impact the profitability of banks impact their core tier-1 capital, comprising equity and reserves levels.