Kingfisher grounds 10-12 aircraft for reconfiguration

Maintaining that no additional flights will be cancelled due to the ongoing aircraft reconfiguration, Kingfisher CEO Sanjay Aggarwal said the changes in the flight schedule will only take place by March, once the reconfiguration process was over

Mumbai: Private carrier Kingfisher Airlines, which has posted a net loss of Rs468.66 crore for the second quarter ended 30 September 2011, on Tuesday said it has grounded 10-12 aircraft for reconfiguration, reports PTI.

Maintaining that no additional flights will be cancelled due to the ongoing aircraft reconfiguration, Kingfisher CEO Sanjay Aggarwal said the changes in the flight schedule will only take place by March, once the reconfiguration process was over.

“Whatever the number of flights are published on the website, we will be flying from today. Changes will happen only after March, when the entire plane revamp will be over,” he told reporters here.

“Overall, we have grounded 10-12 aircraft, or 55 flights, out of the 66 planes. But, we also added some flights by additional frequencies and are starting Mumbai-Udaipur from next month,” Mr Aggarwal added.

The beleaguered company doubled its net loss at Rs468.66 crore second quarter compared to Rs230.81 crore in the July-September quarter of 2010.

The company’s net loss during the first six months of the current fiscal rose to Rs732.21 crore from Rs418.16 crore in the corresponding quarter of the previous fiscal.

“We will be joining the OneWorld Alliance during the first quarter of the calendar year 2012,” Mr Aggarwal said.

On the financial results, a Kingfisher statement said, “This has been a challenging quarter for the industry. The momentum has continued with a demand growth of 20% in the second quarter of 2011-12, however, it has been matched by a capacity growth of 20% putting pressure on the yields for the industry... coupled with a more than 35% rise in fuel price as compared to the same quarter last year.”

EBITDA (earnings before interest, tax, depreciation and amortisation) loss for the quarter stood at Rs23 crore against a profit of Rs307 crore in the year-ago period, while domestic operations saw a 5% increase in revenues during the second quarter compared to Q2 last year.

International operations continued to mature with an 11% rise in revenues. The non-fuel unit cost for international operations declined by 4%, reflecting the cost reduction actions of the airline, it added.

Talking to reporters, UB Group president and CFO Ravi Nedungadi said the company hopes to earn around 3% revenue through the complete aircraft reconfiguration, that is adding business class seats to the all-economy planes.

“We hope to earn 3% more revenue once the complete aircraft reconfiguration is over by March. We see an outgo of under Rs150 crore for this. Our working capital loan request to bankers also includes this,” Mr Nedungadi said.

“As late as last month, the promoters have pumped in Rs150 crore, and around Rs800 crore since January this year...

We need a working capital loan of under Rs1,000 crore,” he said when asked about the fund requirement of the company.

“If the ATF (aviation turbine fuel) is allowed to be imported, then we will be able save 18%-20% of the fuel cost even after paying the fees to the service providers.”

On the rights issue, he said: “We have not moved the SEBI (Securities and Exchange Board of India) for the rights issue. We have a board mandate for Rs2,000 crore rights issue. But it could be a Rs1,000 crore rights issue and Rs1,000 crore GDR (Global Depositary Receipt).”

He added that the company had filed for GDR issue in the beginning of the year with the Luxembourg Stock Exchange, but dropped the idea as the markets suddenly turned negative.


Who Should Regulate Indian Micro-Finance?

Lack of a proper regulatory framework, including lack of proper supervision had played an important role in the disorderly growth of the NBFC MFIs

A recent news item stated that, “In its report ‘Trend and Progress of Banking in India 2010-2011’, The Reserve Bank of India (RBI) states that if State Governments start enacting their own legislations to regulate microfinance institutions (MFIs) including the ones regulated by the Reserve Bank, there will be plurality of regulation leaving scope for regulatory arbitrage. The responsibility for regulating NBFCs has been given to the Reserve Bank, thus, empowering it to regulate the NBFC- MFIs. If other States also come out with legislation similar to the Andhra Pradesh Government, it will raise concerns not only about multiple regulations but also about client protection, as borrowers would then be subject to different regulations. If there are separate regulations governing NBFC-MFIs in individual states, the task of regulation by the Reserve Bank of MFIs operating in more than one State will become even more difficult. This may also impact the business of MFIs, which are operational in more than one State, it says.” (RBI against State Govt regulating microfinance institutions,)

While that is a fair point, without question, it is clear that the lack of a proper regulatory framework (including lack of proper supervision) has played an important role in the disorderly growth of the NBFC MFIs and the challenges arising therein. I shall look at this in detail here and outline the implications Indian micro-finance including the above assertion that state governments have no jurisdiction to regulate micro-finance, even in terms of protection of clients.

In any regulatory framework, there are three major aspects:
1.    To provide legitimacy and a proper regulatory framework to MFIs (Legitimacy For Micro-Finance Institutions and Players) and others involved in delivery of financial services to low income people
2.    To ensure that MFIs indeed satisfy the broader objectives for which they have come into being (in the first place) and also that they operate and function in a sound and legal manner, in accordance with norms and standards required of such (pro-poor financial) institutions (Regulation and Supervision of Micro-Finance Institutions and Players), and
3.    To protect clients from MFI bad practices as well as protect MFIs that operate legally and correctly from usury laws (Protection of Micro-Finance Clients and Institutions)

These are huge diverse tasks spanning financial sector regulation as well as client protection. And given that RBI desires to perform all these roles (directly or through delegation), it seems fair to ask the following questions:  a) how are these tasks to be structured at the RBI (assuming that they would be done by RBI in the first place)?; b) Does the RBI have sufficient capacity to effectively and efficiently manage the various tasks including supervision and client protection both of which require a significant local presence across the country?; c) In case the RBI delegates these tasks, what about the alternative institution and its capabilities with regard to these tasks including supervision?; and d) several other aspects

The rationale behind asking the above questions is that a regulatory system is more efficient if the responsibilities are assigned to the institutions/bodies that have the powers, resources, skills, and knowledge to perform their roles most effectively. If one uses this framework of analysis, the assets of various institutions who are candidates for regulation/supervision of micro-finance in India should be compared as they pertain to the required regulatory and supervisory activities. This is a very critical exercise and must be done objectively and with utmost integrity. A related key question here is whether the said institutions/bodies can obtain, sufficient skills, resources, and capacity to undertake the regulatory/supervisory responsibilities effectively. If sufficient capacity does not exist or cannot be developed, building a regulatory structure that relies on such inst6itutions/bodies will not yield the desired result. This needs to be remembered with utmost caution.

That said, other factors should also be considered in choosing the institution/body to function as the regulatory/supervisory authority and they include the following:

  •  Legal jurisdictions: Which institution has the legal jurisdiction to make rules and to supervise the micro-finance industry players involved – especially, given their diverse and varied legal forms?
  •  Power, authority and local presence: Which body has the power and authority to investigate, discipline, and impose effective sanctions on the micro-finance industry players involved? For example, some institutions may have the power only to collect evidence from and to discipline member firms and their employees but lack the actual (local ground level) infrastructure to do so  
  • Conflicts of interest: Do significant conflicts of interest arise/exist? Conflicts of interest always exist in regulatory systems, but vary depending on the type of regulation and institution involved. There are obvious trade-offs and these need to be evaluated as well
  • Existing regulatory mechanism as a platform: Is there an existing regulatory structure that can serve as a foundation for the proposed new micro-finance regulatory system? Has it been effective in the past and can it be used as a platform for the future?
  • Industry specific knowledge, skills, experience and data: Who possesses the knowledge, expertise, and skills required to regulate and supervise micro-finance? Which institution has access to the information and data needed for the task of regulation and supervision?
  • Regulatory tools: Which body has the necessary regulatory tools (including information technology tools) for the complex task of micro-finance regulation/supervision?
  •  Resources including finance: Last, but not the least, which institution has the funding and resources to do an effective job and deliver in terms of regulating and supervising micro-finance in an enabling manner?

I really hope the various stakeholders approach the issue of finalizing the exclusive micro-finance regulator/supervisor using an objective and professional process, giving due consideration to issues such as those identified above.

Without question, the above questions and issues are very relevant and cannot be ignored and need to be analysed thoroughly. The idea here is not to find fault but rather to highlight practical issues that would need to be considered first before passing on the entire responsibility of micro-finance regulation to RBI, as outlined in the proposed micro-finance bill.

And for that, we also need to look at regulatory and supervisory lessons/issues from the present micro-finance crisis (using the example of RBI’s supervision of NBFCs and banks) and raise the important question of whether or not, the RBI and its concerned departments indeed have the wherewithal to perform all of the functions given above – especially given the 2010 crisis that involved banks and NBFC MFIs. This requires an objective analysis of RBI’s past regulatory role and supervision record and is taken up in the succeeding articles…


No policy paralysis, govt moving ahead with reforms: Finance ministry

Perceived paralysis in policy decisions and government inaction on important economic issues have been a matter of debate in the recent past, with many industry leaders including technology czar Azim Premji seeking urgent steps from policy makers to tackle the issue

New Delhi: The finance ministry today asserted that the government is moving ahead on the path of economic reforms though much more is needed to be done, reports PTI.

“If you talk of policy paralysis, I think it is extremely wrong. Look at all the legislations we have brought, including new laws on mines and minerals, DTC, GST,” Department of Economic Affairs secretary R Gopalan told reporters on the sidelines of a function here.

The government, he added, was moving ahead with economic reforms though much more could be done.

Perceived paralysis in policy decisions and government inaction on important economic issues have been a matter of debate in the recent past, with many industry leaders including technology czar Azim Premji seeking urgent steps from policy makers to tackle the issue.

Besides, a group of prominent personalities, through open letters, has also sought urgent steps in this regard.

Earlier this week, Reliance Industries chairman Mukesh Ambani at Indian Chapter of the World Economic Forum had asked the government to move faster in its decision making and put to rest any notion about policy paralysis due to political constraints.

Mr Gopalan said, “We are on the right path for reform, but we need to do much more, especially in capital markets to make it more participatory.” 

Moreover, he added, the foreign direct investment (FDI) and credit inflows have gone up and the agriculture and services sectors were expected to perform better.

On the possibility of doing away with the Securities Transaction Tax (STT), he said, “I agree that it is bad to have a tax on transactions. We are looking at the issue of reducing STT.”

The stock exchanges have been asking the finance ministry to abolish STT arguing that such a step would help in boosting investments and promote equity culture in the country.

Collection from the STT declined by 17.9% to Rs2,958 crore in the April-October in the current fiscal, mainly because of lower transactions on bourses. It was Rs3,602 crore in the corresponding year-ago period.

The Capital Markets division of the DEA has been pushing for lowering of STT and the issue was discussed at a meeting of the officials with representatives of the stock exchanges including BSE, NSE, MCX-SX and USE and the market regulator Securities and Exchange Board of India (SEBI).

The government had introduced STT in 2004 on transactions in different types of securities. The rate presently varies from 0.025% to 0.25% depending upon the type of security traded and transaction—whether sale or purchase.

Mr Gopalan further said the government was moving ahead with the rationalisation of the stamp duty across the country.

On recapitalisation of banks, he said, “Something will happen. We have a commitment of having 8% Tier-I  (equity) capital for public sector banks. It’s a commitment which we will have to fulfil.”

As regards the market stabilisation fund, he said, “This is at a very preliminary stage. There are always lots of suggestions. When there are suggestions, we have to examine them.”

The stock exchanges have been demanding setting up a fund to deal with problems of the capital market.


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