New Delhi: The Reserve Bank of India has given its approval to the Indian airlines to raise up to $1 billion through external commercial borrowings (ECBs) to meet their working capital requirements for one year, it said, in line with the Union Budget 2012-13 proposal to provide the much needed financial lifeline to the aviation sector reeling under tough competition and high fuel prices.
However, no airline will be allowed to garner over $300 million through ECB as part of the guidelines for the companies in the sector seeking to raise overseas debt, the RBI said a statement earlier Tuesday.
"This ($300 million) limit can be utilized for working capital as well as refinancing of the outstanding working capital rupee loan(s) availed of from the domestic banking system," the statement said.
The central bank further said that the fund raised should be repaid "only out of the foreign exchange earnings of the borrowing company."
The Indian carriers can raise money through ECBs based on their cash flow, foreign exchange earnings and ability to service debt. The ECBs can be mobilized with a minimum average maturity period of three years, it added.
In the Union Budget 2012-13, the government had proposed to allow airlines to raise funds up to $1 billion through overseas borrowings for one year to meet working capital requirements.
Earlier last week, the Ministry of Finance had approved the proposal for airlines to raise fund from overseas markets and had said that the RBI will notify the relevant norms in few days to give effect to the Budget proposal.
The airlines, which are fighting to survive amid stiff competition and rising fuel cost, have a combined debt of $20 billion. State-run Air India Ltd is learnt to have already invited application from domestic banks and international financial institutions for raising foreign-currency loans, the Mint newspaper reported.
Other carriers like Jet Airways, Kingfisher Airlines and SpiceJet Ltd are also exploring options to garner funds through overseas borrowings, but none of them have announced specific plans yet.