Jet Airways crisis: Banks stare at Rs 1,000-crore urgent provisioning

With Jet Airways suspending operations, lenders are looking at an immediate provisioning of about Rs 1,000 crore as the account is likely to be categorised as a non-performing asset (NPA). This comes despite the State Bank of India-led consortium of lenders continuing efforts to find a new buyer for the private airline.  

However, all the lenders are not on the same page but some of them believe that extending any finance to the beleaguered airline is akin to throwing good money for a bad investment, and opening prospects for a probe in future over the credit decision. “We can’t be wasting our money in a case which has already gone bad,” said a senior executive of large public sector bank (PSB).

“The fact of the matter is that the daily cash burn in running the airline was not sustainable looking at the current environment where all the connected parties — customers, lessors and oil marketing companies — were losing faith in the airline,” a top public sector bank executive, aware of the process, said, adding, “Rather than incurring further losses by infusing temporary cash, it was thought to put the airline to a halt and await response from prospective bidders.”

Jet cancelled all flights on Wednesday as lenders did not extend critical interim funding.

Senior public sector bank executives said the account becoming an NPA is near certainty and lenders will have to provision for it according to RBI rules. The timing for treating it as an NPA may be different for lenders based on when repayments are due. According to ICRA, the term loans and non-convertible debentures of the airline amounted to over Rs 5,700 crore to Indian lenders. When a loan remains unpaid for 90 days, it is treated as a sub-standard asset, a first category of NPA. Banks have to then make a provision of 15 per cent for secured loans in substandard category, translating into Rs 900-1,000 crore bill. ICRA had downgraded loans to Jet into “D” category in January.

Admitting that it was a catch-22 situation, a top banker defended the lenders’ decision to not pump funds into Jet, saying the airline’s exposure already stood around Rs 8,500 crore and each lender had to take a commercial decision in a bank-led resolution process.

Only when a long-term buyer is found will banks take the risk of giving additional funding, said another lender. “The fear of queries in future from vigilance and investigative agencies is real for officials working with PSBs,” he added. Lending to Kingfisher Airlines came under scrutiny of probe agencies, leading to arrest of many PSB executives many years after it became an NPA.

Banks are clear they will have to take haircuts on Jet debt as no suitor is going to take over all the liabilities.

The grounding of the airline will complicate the situation further. The costs will mount and aircraft may be taken over by lessors. So, getting them back will be a challenge.

Lenders are now focused on ensuring that the bidding process turns out to be a success even as finding a buyer may take weeks. “The committee of lenders has put its best foot forward. Now, bidders will take time to complete due diligence. There is infrastructure in place to operate the airline with attractive slots and a licence,” a bank executive added.