Lenders in a bind on Kingfisher debt

Selling assets will fetch meagre sum to recover dues

The Directorate General of Civil Aviation (DGCA)’s suspension of Vijay Mallya-controlled Kingfisher Airlines’ licence has put its lenders in a bind, making their task of recovery more difficult.

Senior public sector executives said recovering money remains top priority through legal routes. But banks are constrained to take any action against the “big fellow”, referring to the clout of Mallya. The troubled airline has a debt of over Rs 7,000 crore.

DGCA today suspended the licence of Kingfisher after the airline failed to submit a concrete revival plan. The regulator had served a show-cause notice to the the airline on October 5 following a strike by pilots and engineers.

Kingfisher has defaulted on payments to lenders and is now a non-performing asset (NPA) with most banks. They have already made significant provisions for airline loans.

Early this month, lenders’ had decided to release money from bank accounts to the airline to pay salaries of employees. It is not clear whether money was released for salary payments.

A middle-level executive with Mumbai-based public sector bank said: “It (suspension decision) was seen to be coming. The situation is more difficult now for us.” Review and discussions among lenders and with management of debt heavy airline are done on regular basis.

While banks have looked at using the legal option for recovery, there is no progress on this front. The exposure (loan amount) is so huge that sale of assets (which are collateral) are not adequate to meet obligations.

The airline’s loans were restructured in November 2010 under an industry dispensation, giving it a breather to manage during stressful times. Kingfisher began to default on payments and turned NPA for most lenders in the third and fourth quarters of 2011-12.