Go First Rs 2,000 Crore Loans as NPAs: Central Bank of India Declares

Go First Airlines

Central Bank of India has made a significant announcement regarding its financial exposure to Go First, a no-frills carrier that has been undergoing insolvency proceedings since May 2023. During the July-September quarter of the fiscal year 2023-24, the bank classified its loans to Go First as non-performing assets (NPAs), marking a crucial development in the ongoing financial saga of the ailing airline. Central Bank of India’s exposure, including government-guaranteed emergency credit, amounts to a substantial Rs 2,000 crore.

Ongoing Troubles for Go First

Insolvency Proceedings and Flight Suspension: Go First has faced a series of challenges, including being in insolvency proceedings since May 2023. The situation worsened as the airline ceased operating flights on May 3 of the same year, exacerbating concerns about its financial viability.

Government-Guaranteed Emergency Credit: Part of Central Bank of India’s exposure to Go First includes government-guaranteed emergency credit, a financial lifeline provided to the distressed airline. This credit is essential for the airline’s potential recovery.

Bank of Baroda’s Exposure: Central Bank of India is not the only state-owned lender with a substantial exposure to Go First. Bank of Baroda, another public sector bank, also has a significant financial stake in the troubled airline.

Provisioning and Write-Back

Provisions for Anticipated Stress: During an analyst call for Q2, Central Bank of India revealed that it had previously made provisions in the standard asset category for Go First due to anticipated issues and stress in the future. These provisions were designed to mitigate potential financial challenges.

Write-Back Due to NPA Classification: With Go First’s corporate account now classified as an NPA, the bank’s provisions led to a write-back. This write-back resulted in a 100 percent provision on that account, highlighting the financial complexities associated with the airline’s insolvency.

Recovery Efforts and Collateralization

Optimism About Recovery: While the bank did not specify the exact extent of recovery expected from Go First, its executives expressed confidence in the possibility of a successful recovery effort. Any recovery made will contribute to the bank’s bottom line, a crucial factor in its financial health.

Collateralization of the Account: Executives assured that Go First’s account was sufficiently collateralized, further emphasizing the potential for a successful resolution of the airline’s financial issues.

Asset Quality and Provisioning

Sub-Standard Account Classification: The account related to Go First is categorized as a sub-standard account, indicating that it has remained non-performing for less than or equal to 12 months. This classification reflects the ongoing challenges faced by the airline.

Exceeding Provision Requirements: Central Bank of India made a noteworthy decision to make a full provision for airline accounts, reflecting its commitment to reducing net NPAs and improving the overall asset quality profile.

Emergency Credit Line Guarantee Scheme

Government Support: A significant portion of Central Bank of India’s exposure to Go First, over Rs 600 crore, is covered under the Emergency Credit Line Guarantee Scheme by the Government of India. This scheme, administered by the National Credit Guarantee Trustee Company, provides emergency loan facilities to companies and micro, small, and medium enterprises affected during the pandemic.

Claims and Resolution Prospects: The bank will file claims based on the prospects for resolution and recovery from proceedings under the Insolvency and Bankruptcy Code, 2016, as it seeks to navigate the complexities of the airline’s insolvency.

Emerging Expressions of Interest

Naveen Jindal-led Jindal Power and Jettwings Airways: Recent developments indicate that Naveen Jindal-led Jindal Power and Jettwings Airways, a Guwahati-based regional airline, have submitted expressions of interest for Go First. These expressions of interest signal potential interest in reviving the troubled carrier.

Challenges in Securing Funding: Efforts to secure funding for Go First have been complicated by ongoing legal cases filed by the aircraft’s lessors, adding to the financial intricacies surrounding the airline.

Conclusion: Central Bank of India’s declaration of its loans to Go First as NPAs reflects the ongoing financial challenges faced by the airline. The bank’s commitment to recovery and the collateralization of the account provide hope for a successful resolution. The financial complexities surrounding Go First’s insolvency continue to be closely monitored, with the potential for a positive outcome on the horizon.

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