Source : :17 May 2010, 0017 hrs IST,Sangita Mehta & M Padmakshan,ET Bureau
MUMBAI: IDBI Bank has recalled a Rs 750-crore loan advanced to Kingfisher Airlines, after the company failed to stick to its repayment schedule.
IDBI has sent a notice to the airline asking it to pay a total of Rs 900 crore, which includes a Rs 150-crore short-term loan on which the Vijay Mallya-owned company has missed some payments and a Rs 750-crore loan which will mature after some years.
The letter, which was sent last week, has asked India’s second-largest private airline to pay around Rs 900 crore by the middle of this week. If this did not happen, the bank said that it might invoke guarantees issued by holding company United Breweries Holding and by Vijay Mallya himself.
The contents of the letter were described to ET by people with access to it. Officials from IDBI declined to comment on the matter.
Mr Mallya denied that IDBI was calling back the loan. “The loan was given by a consortium led by SBI. So far, there is no problem. The information that IDBI is recalling the loan is incorrect,” he said.
Banks typically call back loans if it reaches the conclusion that the borrower may fail to pay on time. The recall notice is for Rs 750 crore, as Kingfisher has already defaulted on the Rs 150-crore shorter duration debt. In reality, such recall notices are used as negotiating tactics, a way of telling a defaulting company not to take its payment obligation lightly.
Sources familiar with the matter said that Kingfisher, which has overtaken state-owned Air India and is close behind leader Jet Airways in its share of the domestic market, had failed to pay interest both on the long-term loan (Rs 750 crore) and, interest and principal on the short-term debt (Rs 150 crore) according to the schedule, prompting the bank to send its missive.
Kingfisher Airlines has borrowed around Rs 3,000 crore from several banks, such as State Bank of India, Punjab National Bank, Bank of India, ICICI Bank and Axis Bank and has appointed SBI Capital Markets, an investment banking arm of SBI, to restructure these loans. Kingfisher has announced plans to raise $100-million equity by issuing global depository receipts which would improve its debt-equity ratio.
IDBI and other lenders are worried about their exposure to the airline company. The delay on the part of Kingfisher in arranging equity and the decision to restructure the loan within a year of availing is disappointing, said an official from a large commercial bank, who spoke on condition of anonymity.
Restructuring a loan means changing the original terms under which the money was lent out. Usually, the rate of interest or reduced or the loan is allowed to be paid over a longer-time period. In some cases, both concessions are forthcoming.
RBI guidelines on restructured loans stipulate that restructured loans to non-manufacturing company such as airlines have to be classified as bad assets. Classifying a loan as a bad asset means higher provisioning or requiring banks to set aside more capital, thereby impacting the bottomline.
Sources from SBI Caps say that they plan to seek an exemption from RBI on restructuring loans to the airline company. The lenders would ask RBI to allow them to change the terms of the loan without classifying it as a stressed or bad asset.
However, it is unclear if the central bank will oblige. In the recent past, RBI had declined to relax norms on provisioning even in the case of the Ratnagiri project (Dabhol), forcing lenders to make provisions.
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