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Is Vijay Mallya in serious trouble with IDBI Bank set to declare Kingfisher Airlines a wilful defaulter?

Monday, 18 August 2014 - 3:38pm IST | Place: Mumbai | Agency: dna webdesk

Following the footsteps of the United Bank of India, IDBI Bank has also begun the process of declaring Kingfisher Airlines a wilful defaulter. Multiple media reports quoted MS Raghavan, chairman and managing director of IDBI Bank, who said they had already taken the issue to their board and were in the final stages to declare Kingfisher Airlines a wilful defaulter.

There are two major ways in which a company could be labelled a wilful defaulter-- either it has the ability to pay but is not paying back the loan amount, or it has diverted the loan fund to some purpose other than what the loan was originally taken for.

United Bank of India was the first bank to declare KFA as a wilful defaulter while UCO Bank refused to call it so.

Two other public sector banks, State Bank of India and Punjab National Bank might walk on the same route as well. However, recent media reports said that SBI had said that there was no fraud involved in the Kingfisher loans and the company was not paying just because its business had gone bust. DNA had reported that the steps to recover money from KFA by SBI were not adequate. A banking official had told dna, "The sum raised from Kingfisher is only on its books. SBI says it has taken over brand Kingfisher, worth Rs 200 crore or whatsoever. But it is an amount, which is only on its books and does not have any tangible value." It added, "If industry sources are to be believed, steps haven't been taken to take possession of Kingfisher House in Mumbai and Mallya's villa in Goa, forcing lenders to knock on the doors of the Debt Recovery Tribunal in Bangalore."

KFA is the largest defaulter in the Indian economy, with the banks having an exposure of more than Rs 7000 crore to it. 

Earlier this month, dna had reported that CBI was looking into a loan of Rs 900 crore that was sanctioned to the airlines by IDBI Bank. The investigating agency was reportedly not happy with the response of IDBI on why they had sanctioned the loan when the company had gone defunct, and was not happy with IDBI's response. DNA had reported that CBI has registered a preliminary enquiry and could file an FIR once their enquiry was complete. IDBI issued a statement saying the PE was lodged against KFA and not IDBI Bank.

Similar reports had done the rounds in 2013 when Business Line reported that the CBI was investigating the loans given by SBI to KFA as well. In 2012, SBI had bailed out KFA by giving a loan of Rs 1500 crore to it when the previous loans had already been classified as non performing assets. Media reports also show that SBI also picked up 5.67% of KFA's shares, amounting to Rs 182 crore at Rs 64.28 each, a valuation that never survived in the equity markets.

If KFA is declared as a wilful defaulter, Mallya could face criminal proceedings along with other directors. He would not able to start a new business or procure funds for the next 5 years. Mallya might have to resign from the boards of United Spirits and United Breweries as well, in case the declaration of wilful defaulter comes through.

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