MUMBAI: Lenders to Go First have made full provisions for their loans to the low-cost carrier, which have been classified as non-performing assets.
Lenders, led by public sector banks Central Bank and Bank of Baroda, have a total exposure of Rs 6,251 crore to the low-cost carrier that was earlier known as Go Air. The provisioning done by banks is a pointer to the likelihood that they may have to write off a big chunk of their exposure akin to other troubled airlines. Making timely provisions enables banks to keep their net non-performing asset ratio in check.
Central Bank, which has the largest exposure, told analysts in a call that the bank has classified its Rs 2,000-crore loans as NPA and made 100% provision given the challenges that the airline is facing. Bank of Baroda has also made provisions of Rs 639 crore as the account slipped into NPA during the quarter, the bank’s MD & CEO Devdutt Chand told reporters. The bank said that it was a prudential measure to maintain its net non-performing assets and provision coverage ratio.
IDBI Bank, which has a smaller exposure, is also understood to have made provisions on the Go First Account. Analysts are factoring in a 25-30% recovery in the aviation account. Last week, lenders to Go First Airline extended the time frame for formulating a corporate insolvency resolution plan (CIRP) by three to six months due to the absence of any interested bidders. Lenders are now planning to approach the Wadia family, the promoters of the airline, to inquire about their intentions regarding the company’s management.
Despite the airline being under bankruptcy, Wadia group’s promoters are associated with several prominent companies, including Britannia Industries, Bombay Dyeing, and Bombay Burma.
Upon the airline’s bankruptcy filing, it accrued claims from financial creditors amounting to Rs 6,521 crore, without factoring in subsequent bank financing. Additionally, the airline is entangled in a case in the Delhi high court, where the Director General of Civil Aviation has notified the court that Go First’s aircraft and engines are eligible for return to the lessors.
The Wadia group has faced substantial losses due to the airline’s challenges. Following the bankruptcy filing, Bombay Burma Trading Company, a component of the Wadia group, reported a loss of Rs 1,920 crore, representing its complete exposure to the airline. The impairment amount in FY23 included Rs 224 crore million for inter-corporate deposits and investments of Rs 186 crore, with the remaining allocated as a provision for the encashment of pledged fixed deposits (FDs) and the invocation of a stand-by letter of credit (SBLC).
