ET Bureau | 11 Sep, 2014, 06.17AM IST
Any fund diversions by Kingfisher Airlines to Vijay Mallya's Formula 1 venture will strengthen the case of banks planning to classify him as a wilful defaulter, lenders said.
A recent forensic audit by EY on behalf of the banks said Kingfisher Airlines diverted funds to its sporting company that participates in Formula 1.
Bankers led by State Bank of India had asked EY to check if the company had diverted funds that had been loaned to finance the airline business.
Banks have an exposure of Rs 7,000 crore to the company with State Bank of India having the highest at Rs 1,600 crore whilePunjab National Bank has loaned Rs 800 crore.
After United Bank of India received backing from the Kolkata High Court to declare the company, its promoter and three directors AK Ganguly, Subhash R Gupte and Ravi Nedungadi as willful defaulters, other state-run banks such as SBI and PNB are planning the same. "This will strengthen our case to tag the company and the promoters as wilful defaulter. We had an inclination that loans were diverted to companies not related to the airline business," said a bank chief who did not want to be named. Mallya argued at the Kolkata High Court that United Bank had not given his company a fair hearing before declaring it a wilful defaulter.
According to RBI norms, banks have to give borrowers an opportunity to justify themselves before being declared a wilful defaulter.
United Bank has claimed that despite giving Mallya adequate notice, he failed to present himself at the bank and sent his lawyers to do so.
So far, lenders have recovered aroundRs 600 crore mainly by selling shares of United Spirits and Mangalore Chemicals that were pledged with them. Recently, RBI governor Raghuram Rajan said that the "wilful defaulter tag is a powerful weapon in the hands of creditors for resolving distressed assets".
Any fund diversions by Kingfisher Airlines to Vijay Mallya's Formula 1 venture will strengthen the case of banks planning to classify him as a wilful defaulter, lenders said.
A recent forensic audit by EY on behalf of the banks said Kingfisher Airlines diverted funds to its sporting company that participates in Formula 1.
Bankers led by State Bank of India had asked EY to check if the company had diverted funds that had been loaned to finance the airline business.
Banks have an exposure of Rs 7,000 crore to the company with State Bank of India having the highest at Rs 1,600 crore whilePunjab National Bank has loaned Rs 800 crore.
After United Bank of India received backing from the Kolkata High Court to declare the company, its promoter and three directors AK Ganguly, Subhash R Gupte and Ravi Nedungadi as willful defaulters, other state-run banks such as SBI and PNB are planning the same. "This will strengthen our case to tag the company and the promoters as wilful defaulter. We had an inclination that loans were diverted to companies not related to the airline business," said a bank chief who did not want to be named. Mallya argued at the Kolkata High Court that United Bank had not given his company a fair hearing before declaring it a wilful defaulter.
According to RBI norms, banks have to give borrowers an opportunity to justify themselves before being declared a wilful defaulter.
United Bank has claimed that despite giving Mallya adequate notice, he failed to present himself at the bank and sent his lawyers to do so.
So far, lenders have recovered aroundRs 600 crore mainly by selling shares of United Spirits and Mangalore Chemicals that were pledged with them. Recently, RBI governor Raghuram Rajan said that the "wilful defaulter tag is a powerful weapon in the hands of creditors for resolving distressed assets".
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