Central Bank of India has categorised its loans to Go First as non-performing assets (NPAs) for the second quarter of the fiscal year 2023-24 and made 100 percent provisioning on the loan.
The exposure of the public sector bank, which includes government-guaranteed emergency credit extended to the struggling airline, totals approximately Rs 2,000 crore. Bank of Baroda, another state-owned lender, also has a significant exposure to Go First.
Of the Rs 2,000 crore exposure, over Rs 600 crore is covered under the Emergency Credit Line Guarantee Scheme by the government. The National Credit Guarantee Trustee Company, a government-owned entity, administers the scheme, providing emergency loan facilities to companies and micro, small, and medium enterprises affected during the pandemic. The lender will file claims based on the prospects for resolution and recovery from proceedings under the Insolvency and Bankruptcy Code, 2016.
The account was sufficiently collateralized and the bank expects a successful recovery effort. Any recovery made will contribute to the bank’s bottom line
The airline has been undergoing insolvency proceedings since May 2023 and halted flight operations on May 3 of the same year.
The tax writeback
Central Bank of India disclosed that the bank had previously made provisions in the standard asset category for one major corporate account (Go First) due to anticipated future issues and stress. With the corporate account now classified as an NPA, the provision led to a write-back, resulting in a 100% provision for that account.
In the first quarter of the fiscal year 2023-24, the bank paid tax on the provision, which amounted to over Rs 600 crore for this account, treating it as a standard asset. Now, with the provision amounting to nearly Rs 2,000 crore as an NPA, the bank experienced a write-back of Rs 43 crore, as disclosed by bank executives.
Although the provisioning obligation for sub-standard accounts can be up to 25% of the exposure, depending on the nature of the credit facility, Central Bank of India chose to make a full provision for airline accounts.
Go First’s journey to recovery is marred by complexity. The airline must overcome legal challenges, satisfy creditors, and garner investor interest to take off again. Its struggle highlights the intricate nature of bankruptcy proceedings in the aviation industry and the substantial financial toll they can exact on all stakeholders involved.
