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Last Updated : Jun 05, 2020 03:04 PM IST | Source: Moneycontrol.com

Vijay Mallya saga: Can banks still manage to eke out sizeable recoveries?

Since Mallya's real estate assets, which include a Mumbai office property, his cars and other personal belongings won't fetch much, banks are pinning their hopes on acquiring Mallya's stake holding in United Spirits and United Breweries.

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Even as reports suggest that Vijay Mallya is in the final stage of being extradited to India, bankers to Kingfisher Airlines are not very confident of any meaningful recovery from the fugitive liquor baron.

"First of all, I don't believe that the extradition will happen as the reports suggest. UK laws strongly favour high profile financial fraudsters," said a senior banking industry official on condition of anonymity.

Mallya left India in March 2016 after defaulting on Rs 9,000 crore worth of loans. He had taken these loans to run his failed airline.


Also Read | Vijay Mallya's extradition to India being held up by a 'confidential' legal issue: Report

The consortium, led by State Bank of India (SBI), has been trying to make recoveries from Mallya through legal options but without much success yet. The loans were given against Mallya's own personal guarantee. Other collaterals included some real estate properties belonging to the airline and Mallya, Kingfisher brand, goodwill etc.

But, compared to the money at stake, these would fetch only a fraction of the amount to banks. Bankers said over years value of these collateral have diminished significantly.

Also Read | India in touch with the UK over extradition of Vijay Mallya: MEA

After reports emerged early this week that legal formalities for Mallya's extradition is over, the UK government clarified that he will not be extradited soon.

"Confidential legal issue needs to be resolved before Vijay Mallya's extradition can be arranged,” a report in Hindustan Times said, quoting the UK high commission spokesperson. Mallya has, several times, on Twitter, offered to pay back the principal amount to banks but banks have not taken this seriously.

"There is no offer, only promises on Twitter. They don't sound genuine," said the banker.

In the four years, banks have tried to recover money from Mallya, including auctioning of his real estate properties and threatening legal actions. But those efforts have not resulted in any meaningful recovery.

What are the options now left before bankers? Lenders can still sell his shareholding in companies and recover money.

Since Mallya's real estate assets, which include a Mumbai office property, his cars and other personal belongings won't fetch much, banks are pinning their hopes on acquiring Mallya's stake holding in United Spirits and United Breweries.

Mallya's holding in United Breweries is 11.04 percent which has a value Rs 2,764 crore and that of United Spirits (0.82 percent) at Rs 345 crore. In total, if banks manage to sell these shareholdings on June 4, 2020 banks would get Rs 3,109 crore.

But there are multiple takers for this money. Along with banks, the Enforcement Directorate (ED) is also awaiting recoveries from Mallya.

Mallya, once the poster boy of Indian civil aviation industry, left for the UK on March 2, 2016. This was just hours before a consortium of banks rushed to the Supreme Court seeking his detention and the immediate repayment of outstanding dues on loans. Mallya's debt to banks was a result of a series of borrowings in multiple installments to keep Kingfisher alive.

Since his flight to the UK, Mallya, 64, has been waging a legal war against his lenders, investigators and the Ministry of External Affairs (MEA) by disputing charges of financial fraud levelled against him. The MEA, in April, 2016, revoked his passport. Several rounds of hearings in British and Indian courts have happened since then, leading to Mallya being arrested and released within hours multiple times. While the court room drama continues, the banks have become sitting ducks.

Among the lenders, close to Rs 1,700 crore was disbursed by SBI, the lead bank of the group while IDBI Bank gave Rs 900 crore. Other banks, a mix of state-run and private lenders, contributed a few hundred crore each. Majority of the loans were given based on a personal guarantee by Mallya. The other collateral included the Kingfisher brand — one of the rarest cases when a huge sum was lent to a corporate just against the brand name.

These banks later converted a sizable chunk of loans into equity. SBI and ICICI Bank had converted Kingfisher's shares at Rs 64.48 each, which was at a 60 percent premium to then prevailing market price. The prices crashed to reach penny stock values within 16 months. Kingfisher has since been de-listed from the exchanges.
First Published on Jun 5, 2020 02:43 pm