Vijay Mallya’s relief on wilful defaulter tag may not last beyond a fortnight

Liquor baron Vijay Mallya, who received a temporary reprieve last week from the Calcutta High Court regarding the status of wilful defaulter tag imposed on him by state-run United Bank of India (UBI), may have only a fortnight’s time left before he is again slapped with the same status. Last week, the court rejected UBI’s action of classifying the grounded Kingfisher Airlines, promoted by Mallya, as a wilful defaulter, on technical grounds. The court had observed that the empowered committee in UBI, which decides the willful defaulter status of a borrower, had four members instead of the mandated three members under the Reserve Bank of India’s (RBI) norms. But the bank is working towards resolving this issue, a UBI official told Firstpost. “We will reconstitute the committee with three members and will again classify Kingfisher Airlines as a wilful defaulter,” the official said on condition of anonymity as he is not authorised to talk to the press. [caption id=“attachment_2019939” align=“alignleft” width=“300”]  Mallya owes less than Rs 7,000 crore worth of loans to a host of banks lead by State Bank of India. Reuters[/caption] “This might take about fifteen days,” the official added. Mallya owes less than Rs 7,000 crore worth of loans to a host of banks lead by State Bank of India (SBI). UBI, which has an exposure of about Rs 350 crore exposure to Kingfisher, had tagged the directors of the grounded airline, including Mally, as wilful defaulters in early September after the lender found that the company had violated norms with regard to the use of the bank loans. A wilful defaulter is a borrower, who does not pay back money to banks despite having the ability to do so. In such cases, the money typically diverted to other purposes from the stated end-use. Once a company is tagged as wilful defaulter, its promoters cannot seek any fresh funding from any financial institution nor can they start any new venture for a specific period of time. According to the banker, quoted earlier, other banks are also preparing to tag Kingfisher as willful defaulter. “They (other banks) were waiting to see result of the Calcutta High Court case. Once clarity emerges, other banks too will do the same,” the official quoted earlier said. Hit by mounting pile of bad loans, Indian banks have been intensifying battle against bad loans in the recent years. Besides, Kingfisher, other companies which are categorised as wilful defaulters by other state-run banks include Winsome Diamonds and Jewellery, Zoom Developers, Koutons Retail and Mumbai-based Tayal Group-promoted KSL & Industries. Winsome Diamonds owes Rs 6,500 crore to a clutch of banks including Axis Bank, Canara Bank, Bank of India and Bank of Maharashtra. About Rs 900 crore is balance to PNB going by the information from the bank. Zoom Developers, which owes about Rs 2,600 crore to banks, has an outstanding of Rs 410 crore to the Mumbai-branch of PNB, while Koutons has Rs 88 crore balance. Mumbai-based Tayal group, the former promoters of erstwhile Bank of Rajasthan, which has interests in textile to real estate, has about Rs 2,500 crore to pay back to banks. Total bad loans of India’s 40-listed banks stood at Rs 2.7 lakh crore in September, while total live cases of restructured loans under the corporate debt restructuring channel alone stood at Rs 2.6 lakh crore. Besides this, banks also do bilateral recasts. Although there is no aggregate figure available for the restructured loan amount under bilateral loan recasts, this chunk is estimated to be equal to that of CDR loans. In the absence of a strong economic recovery, analysts estimate restructured loans to turn bad. This will add to the pain of banks, especially state-run lenders, as banks need to set aside more money to cover such loans, which, in turn, impact their profitability.