Go First's bankruptcy: Bank of Baroda made provision of Rs 500 cr against Go First exposure, says report

Public lender Bank of Baroda MD & CEO Sanjiv Chadha on Tuesday said that the bank has made a prudential provision of Rs 500 crore for its exposure in the crisis-hit airline Go First. According to a report in The Economic Times, Chadha in an interactive session confirmed the development.

Chadha added that the bank, which has around Rs 1,300 crore exposure in the cash-strapped carrier, identifies issues in advance and makes provisions if required.

On May 2, Wadia group-owned Go First said it has been “forced” to apply to the National Company Law Tribunal Delhi (NCLT) for resolution and protection under Section 10 of IBC due to the ever-increasing failure of Pratt and Whitney engines that power its fleet.

Besides, the carrier said it will temporarily suspend flight operations on May 3 and 4 due to a "severe fund crunch".

In its bankruptcy filing to NCLT, Go First said it owes Rs 6,521 crore ($797.38 million) in total to Bank of Baroda, IDBI Bank and Deutsche Bank, which are its financial creditors.

The airline has further said it has a total liability of about Rs 11,463 crore to banks, other creditors, vendors, and others.

On the sidelines of the Q4 results, Chadha said that of the total exposure, about Rs 1,000 crore is collateralised by tangible securities and by way of corporate guarantees. In Q4, the bank has gone ahead to make provision of Rs 500 crore for this account.

This means any potential downside has been fully taken into account and the bank is completely protected as far as this account is concerned, Chadha on Tuesday.

The low-cost carrier was granted bankruptcy protection by NCLT last week, which also halted the repossession of aircraft by lessors.

In a regulatory filing to the bourses, private lender Axis Bank clarified that it has no funded or non-funded exposure to the financially-troubled Go Airlines.

The provision for non-performing assets (NPAs) means the banks have kept aside a certain amount from their profits in a particular quarter for NPAs.

According to a Reuters report last week, banks will now classify their loans to the company as "non-performing" in the current quarter, though they are hopeful that the collateral backing the credit would reduce the amount of haircut they have to take.

"As per norms, the account will have to be declared a non-performing asset in the current quarter, and that will be done," a banker was quoted in the Reuters report.

As per RBI’s rules, for handling substandard assets, banks and lenders should have a provision for at least 15 per cent of total outstanding loans on secured assets in the first 12 months.

Last week, the Delhi bench of the NCLT also appointed an interim resolution professional (IRP) to look after the affairs of Go First and also suspended its board as part of the insolvency resolution process.

Go First made its highest annual financial loss to date in fiscal 2022. For several months, the airline lost significant business in an otherwise upbeat domestic aviation market, adding to the woes of the carrier. The company, which was looking for its listing since 2015, deferred its IPO quite a few times until it finally filed for insolvency.

Also read: Go First insolvency crisis: Aviation experts call for tighter regulatory oversight for the sector

Also read: Go First says it needs emergency arbitration in dispute with Pratt & Whitney in Delaware court

Also watch: The Yin and Yang of AI: Why artificial intelligence must be regulated

Also watch: IPL 2023 Lucknow Super Giants (LSG) vs Mumbai Indians (MI): Key players to watch today, match timings, and more