Banks classify Kingfisher Airlines' borrowings as NPAs

According to a leading newspaper, the State Bank of India (SBI) and Bank of India (BOI) have classified the Kingfisher Airlines account as part of the banks' non-performing assets (NPAs). This was following Kingfisher Airlines' inability to pay its dues in a timely manner.

Banks classify accounts as NPAs if any amount payable, whether interest or principal, remains overdue for more than 90 days. With this declaration, there could be a rise in provisions of the banks, which would further impact their profitability. The impact of this may also be seen on the banks' NPAs (total), which could rise in the coming quarters.

The following table shows the key ratios of some of the banks that have exposures to Kingfisher Airlines:

In effect, this has moved Kingfisher Airline's loans from being 'Standard' to 'Sub-standard' assets. The airline had earlier had gone for corporate debt restructuring with the banks. In the current situation, we believe the it will most probably not be able to make its dues in a timely manner, and will require another round of debt restructuring plans.

However, the turnaround of the company could be possible to some extent if FDIs are allowed to invest in the company. The funds bought in by the FDI, could be repaid to some extent to banks which could help both banks as well as the Airlines.

It seems that the banking space has been under tremendous pressure for quite some time now. Concerns persist on the key elements of banks like rising NPAs, maintenance of Net Interest Margins (NIM) and the slowing of credit growth in the economy, which is affecting the banking sector. One must take a wait-and-watch approach as of now. It will also help to take cues from the Q3 FY12 results and the management views, which will help us understand the developments better. Also, one should wait for the RBI’s Q3 review scheduled for Jan 24, 2012, which will provide some guidance on the economic front.