Banks finally put an end to the lingering loan recast issue with the debt ridden Kingfisher Airlines (KFA). They decided to recall loans from the company after meeting the management here in Mumbai on Tuesday late evening.
This means, banks will ask the borrower to refund the entire money it had borrowed from them instead of going for any restructuring scheme. The measure is perceived to be the last resort for banks to recover loans when all other avenues are virtually shut.
"The meeting remained inconclusive. KFA failed to bring in any concrete plan for revival on the table," a general manager of a large bank who attended the meeting told moneycontrol.com on condition of anonymity.
"The management merely reiterated previous assurances. We have no other option left with us but to recall our loans. Now, we will send notice to the company in this regard followed by legal action. If they react positively, it will be a win-win situation for all. Otherwise, we are in a position to recover tentatively 30 percent of total credit exposure," he said.
Over a period of last one year, a series of meetings have taken place. The troubled airlines could not provide any concrete assurance on repaying its debt. For most of the banks, the loan account slipped into doubtful category, the second stage of non-performing assets. A consortium of 17 lenders loaned nearly Rs 8,000 crore to KFA. Hence, banks are roughly expecting to recover around Rs 2,400 crore (30%) though selling of securities.
However, banks may have to take a hair-cut or the difference between the market value of the collateral and orginal value determined by lenders.
It is also learnt that the promoter of the company - Vijay Mallya had given some personal guarantee, which can now be seized by banks legally.
"Vijay Mallya's personal guarantee may be valued at Rs 10,000-15,000 crore. However, he has not given it for the entire credit exposure. With erosion of collateral values, banks now should be charged as to why they took so much time to take this decision," a fomer chairman of a large public sector bank said on condition of anonymity.
In 2010, the airline company was facing some crisis for which he had taken additional credit exposure in the range of Rs 1,000-2,000 crore. This was the amount for which, he had pledged his personal guarantee. Hence, the total exposure is not covered.
Core group of banks
The core lender group included the State Bank of India (SBI), Bank of Baroda, IDBI Bank, Punjab National Bank, Bank of India, and United Bank of India. From KFA, Sanjay Aggarwal, chief executive director and A. K. Ravi Nedungadi, the group CFO attended the meeting with banks.
KFA Debt (Rs in crore)
Punjab National Bank
N.B. figures are rounded off and in approximation.
"We have decided to recall the loans given to Kingfisher Airlines. However, each bank board will decide the future course of action. No progress has been made so far by the airline management to restart operations, and the bankers feel that enough time has been given to the company," Shymal Acharya, deputy managing director (mid-corporates), SBI told reporters after the meeting.
The aviation regulator - Directorate General of Civil Aviation (DGCA) had suspended Kingfisher's operation in October, 2012.
Earlier, Vijay Mallya, the chairman of the company had assured lenders of resuming operations with seven aircrafts and gradually expanding it to 21 in four months. He also mentioned of selling stake to some foreign company to raise funds. Pumping money from other group company was also not ruled out.
Meanwhile, KFA employees were agitating for their salary dues. Recently, Mallya promised them of clearing dues for 11 months and assured of restarting operations by summer.