Bankers, who are eagerly waiting to recover Rs7,000 crore from Vijay Mallya’s cash-strapped Kingfisher Airlines, are scratching their collective heads over the value of the collateral pledged with them, and the way to recover it.
The 17-lender consortium led by State Bank of India is expected to send a formal notice to the airline recalling loans soon. But the banks are finding themselves woefully short on collateral, and face a long legal battle ahead.
“The sub-committee of top four bankers has appointed a legal counsel to look into the modus operandi, the valuation of the collateral pledged, how much we can get and what are the other legal implications involved in invoking the loans,” said a senior bank official familiar with the matter. “We are still awaiting the final response and the report is expected to be out soon.”
The SBI has the maximum exposure with Rs1,600 crore, followed by Punjab National Bank with Rs800 crore, IDBI Bank Rs800 crore, Bank of India Rs650 crore and Bank of Baroda Rs550 crore.
The last valuation of collateral was done 2-3 years back. This was much before Kingfisher started defaulting on payments. The airline since then lost its flying licence in December and failed to get fresh capital from foreign airlines like Etihad Airways.
Another public sector banker close to the decision making process, said the consortium will do the recovery in stages. The consortium holds some of liquor baron Mallya’s real estate in Mumbai, a villa in Goa and two helicopters, apart from United Spirits shares and the airline brand.
“First of all, we would like to go for those securities like shares for which Securitisation and Reconstruction of Financial Assets and Enforcement of Securities (Sarfaesi) Act need not be initiated,” another banker said. “Only after disposal of those securities, the consortium will deliberate upon when and whether to go for Sarfaesi.”
The first-mentioned banker said the offloading USL shares is not going to be a straightforward exercise. “The problem with the share security is that the moment you want to offload such a heavy lot in the market, the price may crash. All these modalities are being worked out,” said the banker.
Suresh Ganapathy, head of financial research team at Macquarie Securities, does not expect anything more than 30% realisation from the collateral pledged. The rest will have to be written-off by the banks if the provisions have not yet been done.
“Some of the bankers have brand as a collateral and now the brand is useless. There are other assets which are not easy to recover and repossess. There are a lot of legal issues involved and the releasability of the collateral is going to be very difficult,” said Ganapathy.
Bankers are hoping to use the Sarfaesi Act to recover money by auctioning the real estate pledged with the banks. But it is not going to be a smooth ride there as well.
“Sarfaesi helps on the retail front. On the corporate front, it isn’t that easy. The banks do not need to go to the court but the promoter can go to the court and get a stay order,” said Ganpathy.
The first banker, who spoke on anonymity, agreed. “They will always resist but ultimately the law of land will prevail. If the law of land permits the big people to influence the decision, then there is nothing you and I can do.”