Indian state-owned lender Bank of Baroda’s MD & CEO on Tuesday said that a provisioning of Rs 500 cr was made by the bank against its exposure towards cash-strapped airline Go First.
The low-cost carrier was granted bankruptcy protection by a company court on Wednesday, which also halted the repossession of planes by lessors.
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 Rs 6,521 crore ($797.38 million) in total.
Private lender Axis Bank in a regulatory filing has clarified that it has no funded or non-funded exposure to the financially-troubled Go Airlines.
As per reports, the airline has a total liability and dues to banks, other creditors, vendors etc. – of about Rs 11,463 crore.
Lenders 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, news agency Reuters had reported last week citing sources.
“As per norms, the account will have to be declared a non-performing asset in the current quarter, and that will be done,” one banker told Reuters. “The account will also have to be provided for.”
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.
Go Airlines (India) Ltd was granted bankruptcy protection on Wednesday, bolstering the country’s fourth largest carrier’s chances of getting back on its feet, but lessors have started mounting legal challenges to repossess planes.
Meanwhile, Bank of Baroda reported a record quarterly profit on Tuesday, helped by an increase in interest income.
The lender, India’s No.3 among public sector banks in terms of assets under management (AUM), said its net profit nearly tripled to Rs 4,775 crore (about $584 million) in the January-to-March quarter, from Rs 1,779 crore a year ago.
Analysts, on average, had expected profit to rise to Rs 4,025 crore , according to Refinitiv IBES.
Its net interest margin rose to 3.53% from 3.08% a year ago. Its gross NPA ratio fell to 3.79% in the fourth quarter, from 4.53% in the previous quarter, while its net NPA ratio fell to 0.89% from 0.99%.
Its provisions, or money set aside for bad loans and contingencies, fell 62% to Rs 1,421 crore.