Embattled industrialist Vijay Mallya on Wednesday offered to pay Rs 4,000 crore by September-end to a consortium of lender banks, in a bid to settle an ongoing acrimonious legal battle with them.
Mallya’s outstanding dues — related to his defunct Kingfisher Airlines — to the 17-member banking consortium led by the State Bank of India (SBI) is a little over Rs 9,000 crore. This includes loans and interest accrued. Details of how Mallya plans to shore up the funds (Rs 4,000 crore) are not known.
The settlement offer was made by Mallya’s legal counsel in the Supreme Court (SC), which is hearing a petition against the former liquour baron filed by the banking consortium.
Banking analysts have welcomed Mallya’s move, as it would help curb their actual losses. “Most banks have fully written off the loans outstanding to Kingfisher Airlines and hence any recovery will directly flow into profits,” says Parag Jariwala of Religare Capital Markets.
SBI has the largest loan exposure in Kingfisher Airlines of around Rs 1,500 crore. The other public sector banks include Punjab National Bank, IDBI, Bank of Baroda, UCO Bank and Bank of India among others.
The apex court has given a week’s notice to the banking consortium, seeking its reply to Mallya's offer. The SC will hear the matter on April 7.
Meanwhile, the banking consortium has already initiated moves to auction the trademarks of the erstwhile Kingfisher Airlines by end of April. The trademarks, which include the airline’s brand name, logo, and tag lines, have a reserve price of about Rs 370 crore. At its peak, the airline’s trademarks carried a valuation of around Rs 4,000 crore.
Mallya’s settlement offer comes as no surprise. In November last year, he had said, “I’m focussed on settling Kingfisher (Airlines) affairs with banks.”
But amidst all this, Mallya hasn't spoken about his settlements with non-bank creditors, who have issued unsecured loans to Kingfisher Airlines. Some of these creditors have filed winding-up petitions in the Karnataka High Court against Kingfisher Airlines and Mallya’s parent company United Breweries Holdings.
Religare’s Jariwala and Vikesh Mehta in their Wednesday note to clients say: “In the past, there have been instances where banks have waived off penalties and interest on delayed payments to facilitate the settlement of cases.”
“Tax authorities in India widely follow this practice to avoid a protracted legal process and to ensure early recovery of dues. In fact, the recent union budget provides a one-time dispute resolution scheme for direct taxes where the part/full penalty will be waived if the disputed tax demand is paid along with interest till the date of assessment. Thus, we do not think it will be unfair of banks to accept the offer.”
“Mallya’s capitulation has come in the face of tremendous pressure from banks, the government and the RBI, which could prompt other willful defaulters and stressed companies to clear their dues – a key positive for banks,” Jariwala says.
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Long Term or Short Term? As per media reports , Vijay Mallya has offered to repay Rs 4000 cr of debt by Sept . I presume he would offer to repay the balance at some unspecified date. Supreme Court has asked RBI and the lending banks to come back in a week with their response to Mallya's offer. In a normal course , such restructuring of a loan would be a routine affair, without anyone in public paying any attention But these are not " normal " times! Which bank would dare to be criticized for "being soft / being in collusion", after Prime Minister's public announcement two days back that: "We will ensure that every rupee of loan is recovered . We will not let the rich rob the poor and get away". Apparently , PM wants the lending banks to: * Go beyond the symptoms and uncover the true nature of the disease * Stop worrying about immediate write-offs and focus on future health * Ensure that their soft approach does not set a bad precedent to others * Surgically cut the diseased limb to ensure that Cancer does not spread * Send a loud and clear message to, # 72 companies which have failed to service debt ( Rs 5.53 lakh*crore ) for two years # 40 companies which have failed to service debt ( Rs 2.94 lakh*crore ) for three years I can understand why RBI does not want Supreme Court to reveal the names of companies in default, who have loan outstanding of over Rs 500 Cr. RBI feels that this may have "adverse impact" for business. But what about "adverse impact" for the public, using whose tax money, 29 Public Sector Banks, quietly wrote-off , Rs 1.14 lakh*crore of bad debt between 2013 and 2015? And the "adverse impact" on Central exchequer by re-capitalizing of these banks, using taxes paid by you and me ? Shri Arun Jaitley says: Amount of re-capitalization will be linked to the speed with which these banks manage to recover their NPAs. I hope , he has also told all banks , in unmistakable words : " You will neither restructure these existing loans to the defaulters nor make any further advances to # these defaulting companies, or # its associate companies , or # directors of these companies ( personal loans ) # relatives of these directors ( personal loans ) # persons who are sureties for these defaulters You will launch court cases against such defaulters for repossessing their properties and wherever there are cases of "cheque bounces", you will obtain from the courts, " Non Bail-able Warrants " against such directors. You will share with the public at large , full details of the defaulters online You ( bank directors ) will not be paid any salary till you recover these loans If you fail to recover in 24 months , you will get a sack ! " Dear Shri Jaitleyji : If anything that I have said above sounds too harsh to you, just hang on the wall across your table , a photo of any of those thousands of farmers who are committing suicides, every year because rains failed and they could not repay their bank loans! Right below that photo, dynamically display statistics of : * Number of farmers who committed suicide in past 24 hours * Cumulative no of Farmer suicides, so far, this yearon Apr 1, 2016