Saikat Das & Shaheen Mansuri
moneycontrol.com

For banks with exposure to the ailing Kingfisher Airlines, it may be a choice between devil and deep blue sea. Citing the recent Cabinet approval for foreign direct investment in aviation, Vijay Mallya, owner of debt-ridden Kingfisher Airlines (KFA) has been trying to convince lenders and the regulator of a revival plan. This time, however if his assurance of getting a foreign partner via FDI route fails to deliver, the company may face the threat of liquidation wherein, banks would proceed to sell the collateral pledged against loans of around Rs 7,000 crore.

KFA has been in touch with foreign investors to raise capital for his struggling airline firm, without any success so far.

For most banks, the loan account will be marked down to the status of a 'doubtful asset', the second level of non-performing assets in December, 2012. A consortium of 17 banks led by SBI has already downgraded KFA account to sub-standard asset category, which is the first level of a non-performing asset (NPA) wherein a borrower stops repaying his loan for 90 days.

When banks do not get repayment for a full year, the loan accounts slips into doubtful category. This requires higher provisions against the loan, which will erode banks' profitability further. As per RBI norms, banks have to provide at 30% for doubtful assets while it is at 15% for sub-standard assets.

"We are hopeful that Mallya will get something through FDI route this time. If the lone option fizzles out, we may start liquidating their collateral," a senior banker whose bank has a substantial credit exposure in the airline told moneycontrol.com on condition of anonymity.

"However, that is not our wish and we want KFA to survive with every possible mean. It is not good for the economy if a big company goes burst. All bankers are meeting by October-end to decide on the next course of action. Solution will not come in one-go," the banker said.
 
Mallya has pledged his Goa's beach-facing villa valued at USD16 million, banks have guarantees of more than USD1.2 billion from Mallya and his holding company. He also has his registered office near Mumbai Airport and a villa, both valued at around Rs 200 million. The KFA brand is roughly around Rs 3000 crore, say bankers. Mallya has even given a personal guarantee of USD 50 million to his lenders.

Portfolio manager P.N Vijay adds that Mallya has started monetizing his assets. The airline has used as security all its movable assets, trademarks, 'goodwill' of the company, credit card and other receivables and a mortgage on Kingfisher House

State Bank of India  (SBI) alone has an exposure of Rs 1,500 crore to KFA. IDBI Bank has one of Rs 727 crore, Bank of India has Rs 575 crore and Bank of Baroda has Rs 537 crore. Recently, ICICI Bank sold its entire KFA exposure of Rs 430 crore to Kolkata-based Srei Infrastructure Finance.

saikat.das@network18online.com & shaheen.mansuri@network18online.com