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Why's UCO not calling Vijay Mallya a wilful defaulter?

Tuesday, 29 July 2014 - 6:00am IST | Place: Kolkata | Agency: dna

Two Kolkata-based banks are taking conflicting positions when it comes to describing Kingfisher Airlines. While United Bank of India says the Vijay Mallya-owned company is a wilful defaulter, UCO Bank is reluctant to call it so. United Bank has even filed a winding-up petition against the company in the Calcutta high court. UCO's argument is that it can term the airline a wilful defaulter only if it has some evidence.

What's Kingfisher's total debt?
Kingfisher has a total debt of about Rs 12,000 crore (with interest on a principal of about Rs 8,000 crore). UCO Bank is among the 17-bank consortium that has lent money to the airline. Its exposure to the airline is Rs 250 crore now. It was Rs 320 crore in December 2013.

Why's UCO not calling Mallya wilful defaulter?
The bank says even if it does so, he can challenge it in a court. "First, we have to notify him. Then, he will respond. He has to be given a chance to appear before the grievance redressal committee. Thereafter, the issue can be taken to a court," a UCO Bank official said. "We have asked for details of SBI's forensic audit of Kingfisher to take a call," he said. SBI has classified the bank as a defaulter, not a wilful one.

What happens on home loan defaults?
Typically, banks declare non-performing assets in 90 days and initiate legal proceedings against the borrower. The entire process does not exceed six months. Big borrowers like Vijay Mallya can afford a battery of lawyers where as middle-class borrowers cannot. Hence, recovery is a two-pronged strategy -- a classification under NPA and initiating recovery by sale of property.

In case of deaths or job losses?
There is no connection between bank credit and loss of jobs or death of a loanee or family member. Banks provide home loans after mortgaging the property. In genuine defaults due to unforeseen circumstances, banks give a grace period ranging between 90 and 180 days. After that some remedial measures like restructuring of EMIs to lower amounts can be allowed. In some cases, banks can dispose off the property without the intervention of the court.

Who, then, is a wilful defaulter?
RBI has four definitions. One, a default despite the borrower having the capacity to repay. Two, default and fund not being utilised for the specific purposes for which the loan was taken. Three, default and loan funds siphoned off or if the funds are not available with the unit in the form of other assets. Four, default and loan taker disposes off movable fixed assets or immovable property given as security.

Which bank calls Mallya a wilful defaulter?
United Bank has been the most aggressive on the recovery front. It wants Mallya to appear in person before its officials. On May 28, 2014, the bank issued a notice informing Kingfisher that its account in the Bangalore branch has been classified non-performing asset the company is a wilful defaulter. Kingfisher challenged the decision and that a lawyer will represent it.

Where's the UBI, Kingfisher fight headed now?
United Bank then issued a notice to Mallya to personally appear on June 28, but raised fresh allegations in that notice. Kingfisher said it needed time to address the fresh charges and made the demand for an advocate again. The bank replied that the master circular of RBI does not contain any provision for being represented by a lawyer.

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