Central Bank of India Labels Go First Loans as NPAs

25 Oct 2023 CW Team

Out of the Rs 20 billion exposure, over Rs 6 billion is covered under the government's Emergency Credit Line Guarantee Scheme, administered by the National Credit Guarantee Trustee Company. The lender will file claims based on the prospects for resolution and recovery through the Insolvency and Bankruptcy Code, 2016.

Despite the collateralisation of the account, the bank anticipates a successful recovery effort, with any recoveries contributing to its bottom line. Go First has been undergoing insolvency proceedings since May 2023 and suspended flight operations on May 3 of the same year.

Central Bank of India previously made provisions in the standard asset category for Go First due to anticipated future issues and stress. With the account now classified as an NPA, the provision resulted in a write-back, creating a 100 per cent provision for the account. The bank had paid tax on the provision in the first quarter of the fiscal year 2023-24, treating it as a standard asset. Now, with the provision categorised as an NPA and amounting to nearly Rs 20 billion, the bank experienced a write-back of Rs 430 million.

While the provisioning obligation for sub-standard accounts can be up to 25 per cent of the exposure, Central Bank of India opted to make a full provision for airline accounts. Go First's path to recovery is fraught with complexity, involving legal challenges, creditor satisfaction, and the need to attract investor interest. This situation underscores the intricate nature of bankruptcy proceedings in the aviation industry and the substantial financial impact on all stakeholders involved.

Central Bank of India has reclassified its loans to Go First as non-performing assets (NPAs) in the second quarter of the fiscal year 2023-24 and has allocated a full 100 per cent provision on these loans. The bank's exposure to the struggling airline, which includes government-guaranteed emergency credit, stands at approximately Rs 20 billion. Bank of Baroda, another state-owned lender, also holds a significant exposure to Go First. Out of the Rs 20 billion exposure, over Rs 6 billion is covered under the government's Emergency Credit Line Guarantee Scheme, administered by the National Credit Guarantee Trustee Company. The lender will file claims based on the prospects for resolution and recovery through the Insolvency and Bankruptcy Code, 2016. Despite the collateralisation of the account, the bank anticipates a successful recovery effort, with any recoveries contributing to its bottom line. Go First has been undergoing insolvency proceedings since May 2023 and suspended flight operations on May 3 of the same year. Central Bank of India previously made provisions in the standard asset category for Go First due to anticipated future issues and stress. With the account now classified as an NPA, the provision resulted in a write-back, creating a 100 per cent provision for the account. The bank had paid tax on the provision in the first quarter of the fiscal year 2023-24, treating it as a standard asset. Now, with the provision categorised as an NPA and amounting to nearly Rs 20 billion, the bank experienced a write-back of Rs 430 million. While the provisioning obligation for sub-standard accounts can be up to 25 per cent of the exposure, Central Bank of India opted to make a full provision for airline accounts. Go First's path to recovery is fraught with complexity, involving legal challenges, creditor satisfaction, and the need to attract investor interest. This situation underscores the intricate nature of bankruptcy proceedings in the aviation industry and the substantial financial impact on all stakeholders involved.