Central Bank of India shares nosedive on Go First insolvency; Jefferies sees low impact on banks

Go First owes Rs 6,521 crore to lenders like Central Bank of India, Bank of Baroda, IDBI Bank, Axis Bank and Deutsche Bank, a report has said

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Shares of Central Bank of India went into a tailspin in morning trade on May 3, a day after budget carrier Go First filed for voluntary insolvency resolution due to a “severe fund crunch”, triggering fears over banks’ exposure to the Wadia Group-owned low-cost airline.

At 10.20 am, Central Bank of India was trading 4 percent down at Rs 29 on the BSE.

On May 2, Go First announced it had filed an application for voluntary insolvency resolution proceedings before the National Company Law Tribunal (NCLT), Delhi.

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The announcement was made by CEO Kaushik Khona shortly after the carrier said it would temporarily suspend flight operations on May 3 and 4 due to a “severe fund crunch”. The flights would be restarted once the NCLT admits the application, Khona added.

MC Exclusive | Cash burn of Rs 200 crore a month leaves GoFirst broke: CEO

As per a Reuters report, Go First owes Rs 6,521 crore to lenders like Central Bank of India, Bank of Baroda, IDBI Bank, Axis Bank and Deutsche Bank.

As of April 30, Go First Air had not defaulted on any of these dues, it said in its bankruptcy filing, which was seen by Reuters.

Reuters also quoted an official at Central Bank of India saying that the state-owned lender’s total exposure to the airline is Rs 2,000 crore. The person spoke on condition of anonymity as they are not allowed to speak to the media.

Bank of Baroda dropped 3 percent to Rs 183, IDBI Bank dipped 1 percent to Rs 54.35, while Axis Bank was trading 0.76 percent down at Rs 864 in morning trade on May 3.

Also Read: InterGlobe Aviation soars as Go First bankruptcy opens doors for higher fares, market share

Its bigger rival InterGlobe was trading almost 5 percent higher on expectations that IndiGo, India’s biggest airline, would bag a bigger market share and may also gain on increase in fares as cupply constraints.

SpiceJet, too, was trading higher. The airline is looking to borrow Rs 400 crore to mobilise 25 aircraft to get its grounded fleet back in the air.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.?

‘Low impact on banks’

In a note, foreign brokerage Jefferies said it sees a low impact on Indian banks following Go First’s insolvency.

“Based on filings for Apr-21 and Sep-21, we understand that loans from banks were c.Rs20-25 billion, which is just around 2 bp of sector loans. Majority of liabilities (Rs 110 billion) are as lease liabilities,” it said.

Jefferies estimates Central Bank of India’s exposure at around Rs 700 crore, and ICICI Bank’s at Rs 350-400 crore, which is 4 basis points of its loans. Additionally, ICICI Bank has 1.3 percent of its loans in buffer provisions.

“We see low risk for lenders,” it added.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.