Besides working out the resolution plan, lenders of troubled Jet Airways have one more procedural issue to deal with. Should the Jet Airways account, which defaulted on repayments last December, be classified as an NPA? Will banks attract RBI’s wrath for divergences in not classifying a defaulted account, currently undergoing a bank-led resolution process, as an NPA?
Typically, an account becomes an NPA when the overdue amount stretches beyond 90 days. But after missing payments in December 2018 quarter, Jet Airways serviced its debt in subsequent months, following which it has become a standard account for most of the lenders. Given it’s a regular account now, lenders may not want to classify the account as NPA — which requires them to make provisioning of 15 per cent of the respective exposures as per regulatory norms. As on March 2018, Jet’s debt stood at about Rs 8,500 crore, and a 15 per cent provisioning would mean banks need to set aside about Rs 1,275 crore during the current quarter.
But it’s important to note that though Jet honoured payments, it is a fact that there’s a cash flow issue and defaults aren’t completely unavoidable without additional capital infusions.
Also, as per RBI’s February 12 circular, lenders have to devise and implement a resolution plan for troubled accounts within 180 days of first default, which is why lead banker SBI which kick-started the process in January has set an internal timeline of 180 days to conclude the revival and resolution package. And if the Rs 1,500 crore emergency funding being arranged by the banking consortium is construed as a resolution package, banks have to mark down Jet’s account as an NPA and make relevant provisions. Last month, bankers indicated the account has become regular, but it remains to be seen if they mark it down this quarter.
Jet had Rs 1,700 crore worth debt repayments due between December, 2018 and March, 2019, Rs 2,444.5 crore in FY20 and Rs 2,167.9 crore in FY21. Its interest cost alone stood at about Rs 230 crore a quarter.
Last month, in a regulatory filing, Jet said the bank-led Provisional Resolution Plan estimates a funding gap of nearly Rs 8,500 crore including proposed repayment of aircraft debt of Rs 1,700 crore to be met by appropriate mix of equity infusion, debt restructuring, sale/sale and lease back/re-financing of aircraft among other things.