Central Bank of India classifies loans to troubled airline Go First as NPA

Public sector lender Central Bank of India has classified its loans to Go First, the troubled airline, as non-performing assets (NPA) in the second quarter ended September 2023 (Q2FY24). The no-frills carrier has been under insolvency proceedings since May 2023. It stopped operating flights from May 3, 2023.

The public sector lender's exposure, including government-guaranteed emergency credit to ailing airline, is about Rs 2,000 crore. Besides the Central Bank, another state-owned lender, Bank of Baroda, also has substantial exposure to Go First.

Central Bank officials in an analyst call for Q2FY24, said the bank had earlier made provision in the standard asset category for one big corporate account (Go First) as it was expecting that this account may have some issues (aka stress) going forward. So now that the corporate account has slipped to NPA, the provision had a write-back and made 100 per cent provision on that account.

Last quarter (Q1FY24), it paid tax on the provision (over Rs 600 crore) on this account, treating this as a standard asset. Now, the provision has gone up close to Rs 2,000 crore as NPA, bank has got a write-back of Rs 43 crore, bank executives said.

While the bank did not specify the extent of recovery it could make from this account, it said the account was sufficiently collateralised. It has a good chance of recovery when it works on such a task. Whatever comes through recovery will add to the bottom line, bank officials said on analyst call.

Going by rules for provisioning, it is a sub-standard account, aka an account remaining non-performing for less than or equal to 12 months. While provisioning obligation for sub-standard accounts can be up to 25 per cent of exposure depending on the nature of credit facility, the Central Bank of India has preferred to make full provision for airline accounts. "Bank wants to reduce the net NPAs also low as a continuation of steps to improve overall asset quality profile and hence made provision much in excess of requirement", bank official said.

Out of Rs 2,000 crore exposure, over Rs 600 crore has a cover under the Emergency Credit Line Guarantee Scheme (ECLGS) from the government of India. The government-owned National Credit Guarantee Trustee Company Ltd (NCGTC) runs the scheme, which provided emergency loan facilities to various companies and MSMEs that suffered during this pandemic. Depending on the prospects for resolution and recovery from proceedings under the Insolvency and Bankruptcy Code, 2016, the lender will have to file claims.