Banks may make accelerated provisioning towards their Jet Airways exposure from the quarter beginning April-June 2019, as the possibility of the grounded airline taking wings again looks bleak and they do not have much by way of collateral to fall back on.
With the efforts to find a resolution outside the Insolvency and Bankruptcy Code (IBC) process not yielding any result, banks on Monday decided to refer the airline to the National Company Law Tribunal (NCLT) to initiate corporate insolvency resolution process under the IBC.
Banks have an exposure of about ₹8,200 crore to the defunct airline, which stopped operations in April due to a cash crunch. This exposure became non-performing with effect from March-end 2019.
Once an account slips into the sub-standard category, banks set aside 15 per cent of the secured portion of their exposure and 25 per cent of the unsecured portion as provisions.
But in the case of Jet Airways, they may make an overall provision of 25-30 per cent from the June quarter to avoid chunky provisioning, which could have a deleterious impact on their bottomline, in case the account gets liquidated.
So, at 25 per cent provisioning, banks may have to set aside about ₹2,050 crore, and at 30 per cent provisioning, it could be about ₹2,460 crore.
Out of the 26 banks that are part of the State Bank of India-led consortium, half are Indian and the rest foreign.
“Banks can make provisions over and above the regulatory minimum. Ultimately, the provisions have to be made — if not today, then tomorrow. In a way, accelerated provisioning can strengthen their balance sheet.
“If bankers are pretty sure that the amount is not going to come back, then it does not make any economic sense to keep the provisions pending. So, earlier the better,” said BK Divakara, former Executive Director, Central Bank of India.
While relatively stronger banks may chose to make provisions over and above the regulatory minimum in the case of Jet Airways, those under prompt corrective action (PCA) may stick to the regulatory provisioning requirement, so that there is no strain on their bottomline.
Shares tumble
On Tuesday, Jet Airways’ shares tumbled nearly 41 per cent after the SBI-led consortium of lenders decided to send the grounded airline to the NCLT.
The scrip plummeted 40.78 per cent to close at ₹40.45 on the BSE. During the day, it tanked 52.78 per cent to hit an all-time low of ₹32.25.