Exposure to Kingfisher Airlines may become NPA for Indian Overseas Bank

Chennai-based public sector lender, Indian Overseas Bank (IOB) which has exposure of Rs 120 crore towards cash-strapped Kingfisher Airlines today said the account may become non-performing asset (NPA) for the bank in the current quarter (October-December). While most Kingfisher lenders already marked the account as non-performing, it is still performing for the Chennai-based lender.

According to a senior official of the bank, if it becomes a NPA then the bank will have to provide 15-25 per cent of this Rs 120 crore as provisioning in this quarter. The exposure is in the form of working capital finance. At present, the lender is treating KFA account as standard asset though payments has become due.

There are 17 banks in the consortium of lenders to Kingfisher Airlines in which State Bank of India is the leader with an exposure of about Rs 1,500 crore.

As on September 30 the gross NPAs of the bank stood at Rs 5,930 crore as against Rs 3,898 crore a year ago while net NPAs stood at Rs 3,378 crore as against Rs 1,505 crore a year ago. According to the bank's chairman and managing director M Narendra going forward the bank will focus a lot on recovery. Narendra said fresh slippage in the July-September quarter was 1,600 crore domestically and international was Rs 200 crore. 

Two years ago the loans of Kingfisher Airlines were restructured under industry dispensation. However, the airline began to default on payments. Due to this the loans turned NPAs for most lenders in the third and fourth quarters of the last fiscal.

As part of the restructuring package, part of the debt (about Rs 750 crore) was converted into equity. In March 2011, Kingfisher issued about 116 million shares (of Rs 10 each) at a price of about Rs 64 per equity share. These shares had a lock-in period of a year.

Banks received shares of the airline but the stock price plunged due to which banks had to make provisions for erosion in the value of shares. On Monday, the Kingfisher Airlines stock closed at Rs 11.75 on the BSE, a rise of 3.07 per cent.