go first: Go First’s bank loans to be classified as “bad”, but has strong collaterals

Lenders to Go Airlines (India) Ltd will classify their loans to the company as “non performing” in the current quarter, but are hopeful that the collateral backing the credit would reduce the amount of haircut they have to take, two banking sources said on Thursday.

The low-cost carrier was granted bankruptcy protection by a company court on Wednesday, which also halted repossession of planes by lessors.

“As per norms, the account will have to be declared a non-performing asset in the current quarter, and that will be done,” one of the bankers said. “The account will also have to be provided for.”

The bankers did not wish to be named because they are not authorised to speak to media.

The Indian central bank’s rules for handling substandard assets says banks have to provision for at least 15% of total outstanding loans on secured assets in the first 12 months.

The Go First bankruptcy filing lists Central Bank of India Ltd, Bank of Baroda Ltd, IDBI Bank Ltd and Deutsche Bank among its financial creditors, which are owed 65.21 billion rupees ($797.38 million)in total.

Central Bank of India has some of the largest exposures to the airline, of 13.05 billion rupees at the end of March, or 0.91% of total advances, with an additional 6.82 billion sanctioned under a government-backed emergency credit guarantee scheme. Total debt under the consortium’s lending was worth 26.50 billion rupees, extended by the three Indian banks, as per a court filing. A piece of land owned by the promoters of Go First, documentation for which were in order, acts as a collateral for that amount, the second banker said.

Go First’s total outstanding dues also include 12.92 billion rupees under the government’s emergency credit scheme introduced during the Covid crisis, the court filing showed. As part of the scheme, the government guarantees loans given out by banks to the company.

Payouts under the scheme are typically made on a quarterly basis after the government reviews and assesses the claims filed, the second banker said.

Both the sources said that the insolvency process could be long drawn amid legal troubles since SMBC Aviation Capital, a lessor to Go First, has sought to quash the court’s bankruptcy order in the appellate tribunal.

“Banks want to make a fast move; we do not want delays,” the first banker said. “However, legal troubles are expected to compound and that could delay the insolvency process.”