(Read my Observation given below)
As Vijay Mallya and his son Siddharth sit with a Rs 21 crore purse and seven cricketers he can sell to make some money in the IPL auction, India's public sector banks are struggling to recover even a fraction of their Rs 7000-crore loans from Mallya's grounded Kingfisher Airlines.
As Vijay Mallya and his son Siddharth sit with a Rs 21 crore purse and seven cricketers he can sell to make some money in the IPL auction, India's public sector banks are struggling to recover even a fraction of their Rs 7000-crore loans from Mallya's grounded Kingfisher Airlines.
Documents, forensic reports and accounts of people from across the world studied by dna reveal that members of the 17-bank consortium of lenders led by SBI may never be able to recover the money loaned to Mallya's airline.
The State Bank of India (SBI), the major lender to Mallya's airline, till now has managed to recover only Rs 155 crore out of the Rs 1,623 crore due from it. dna has learnt from official SBI sources that the value of Kingfisher Airlines pledged to the bank has now plummeted from Rs 4,000 crore to Rs 6 crore! SBI is unable to find a single buyer for the 'Kingfisher' trademarks. And Kingfisher Airlines has told Indian courts that it is not in a position to payback its debts.
According to the hypothecation deed signed between SBI and Kingfisher Airlines on August 10, 2010, SBI was given ownership of all trademarks and goodwill if Kingfisher Airlines failed to repay its debts.
These included Fly Kingfisher (label mark & word), Flying Models, Fly The Good Times, Funliner & Kingfisher (label mark). In 2009, global consultancy firm Grant & Thronton valued Kingfisher trademarks at Rs 4,111 crore or roughly $1 billion. In 2012, when the airline's licence was suspended by India's aviation regulator Director General of Civil Aviation (DGCA), Kingfisher Airlines valued itself at Rs 3,008 crore. The current value of the trademarks now stands at a mere Rs 6 crore! "We have put it up for sale. But have not received any satisfactory responses till now," according to official bank sources.
Year Brand value of Kingfisher Airlines Money owed to banks (estimated)
2009: Rs 4,111 crore : Rs 4,000 crore
2012: Rs 3,008 crore : Rs 7,000 crore
2014: Rs 6 crore : Rs 7,000 crore
The role of some banks is also quite suspicious. One of the banks under the radar of the CBI for its loans to Kingfisher Airlines is IDBI. CBI sources reveal that IDBI had extended loans to Kingfisher despite being warned by some board members not to do so. The result is that the bank has ended up with bad debts of Rs 700 crore. Curiously, IDBI gave the loan to Kingfisher after being pledged the airline's now 'junk' trademarks worth a mere Rs 6 crore!
Among the medium-sized banks, Bank of India is owed Rs 308 crore. The bank was mortgaged all the current assets of the airline. It included items like air conditioners, tractors and monetarily unsubstantial items like folding chairs. The bank has been struggling to recover even a fraction of its loan from the sale of Kingfisher's bag of random goodies. How could a bank give over Rs 300 crore after being pledged office stationary like boarding pass printers & folding chairs remains a mystery. BOI did not respond to dna's questions.
Sumanto Bhattacharya, spokesperson of UB Group, denies manipulating the banks, "There is no question of any deliberate undervaluation by Kingfisher Airlines Ltd as the banks themselves had conducted their own due diligence including the security available and also satisfied themselves about the viability of Kingfisher Airlines Ltd before undertaking the debt restructuring."
Documents accessed by dna show that Mallya had also given a personal guarantee of several other physical properties – one of which was his 'Hollywood' style Kingfisher Villa located at Candolim, Goa. SBI is awaiting a reply from the District Magistrate who has to give permission for police personnel to step in and help the bank recover the property. The application is yet to be even listed for hearing. Even if SBI gets physical possession of the property, all it will manage is to dent Mallya's ego. The value of the villa, though higher than Kingfisher trademarks, is barely a fraction of the Rs 1,600 crore that Mallya owes SBI.
Another one of 'irrecoverable' properties was Kingfisher House, measuring over 17,000 square feet in Mumbai's suburban Andheri locality, which was given as a personal guarantee by Mallya. The property was originally hypothecated to Punjab National Bank in 2010 and Kingfisher Airlines owes the bank Rs 290 crore. Kingfisher Airlines refused to part with the property and the matter is currently listed in the Chief Metropolitan Court in Mumbai after SBI filed an application under the securitisation and reconstruction of financial assets and enforcement of security interest (SARFAESI) Act, 2002.
Sumanto Bhattacharya, spokesperson of the UB Group, denies playing hardball, "Kingfisher House is owned by Kingfisher Airlines Ltd and not Mallya. Kingfisher Villa is owned by United Breweries (Holdings) Ltd and not Mallya. In any case, Kingfisher Airlines Ltd is a party defendant to proceedings filed in the Goa courts by United Spirits Ltd in respect of Kingfisher Villa and since the matter being sub-judice it won't be appropriate to comment on it."
Perhaps more curious is the case of Indian Overseas Bank. The airline owes IOB a sum of Rs 108 crore for which it had mortgaged two helicopters in 2008. IOB did not respond to dna's questions on the whereabouts of the choppers. It is believed that the Eurocopters were not in flying condition and the bank is struggling to dispose them of to recover its bad debts. IOB is now a loss-making bank having posted a Rs 516-crore loss this quarter.
There are other smaller banks in the consortium which have lent money to Kingfisher Airlines after being pledged the airline's current assets. Central Bank of India gave a term loan of Rs 350 crore on the condition that all sale proceeds and lease rents would be remitted in an escrow account with the bank. The airline was grounded within a year and the bank couldn't recover the money. Banks like Corporation Bank, State Bank of Mysore and Vijaya Bank gave loans of close to Rs 400 crore after being pledged all movable assets, movable assets and plant & machinery of the airline.
Many of the banks have reached a dead end. A realisation has dawned on them that Rs 7000 crore of public deposits they lent to Kingfisher Airlines have vanished in thin air. Chances of even recovering even a fraction of the amount seem to be fading by the day.
Documents, forensic reports and accounts of people from across the world studied by dna reveal that members of the 17-bank consortium of lenders led by SBI may never be able to recover the money loaned to Mallya's airline.
The State Bank of India (SBI), the major lender to Mallya's airline, till now has managed to recover only Rs 155 crore out of the Rs 1,623 crore due from it. dna has learnt from official SBI sources that the value of Kingfisher Airlines pledged to the bank has now plummeted from Rs 4,000 crore to Rs 6 crore! SBI is unable to find a single buyer for the 'Kingfisher' trademarks. And Kingfisher Airlines has told Indian courts that it is not in a position to payback its debts.
According to the hypothecation deed signed between SBI and Kingfisher Airlines on August 10, 2010, SBI was given ownership of all trademarks and goodwill if Kingfisher Airlines failed to repay its debts.
These included Fly Kingfisher (label mark & word), Flying Models, Fly The Good Times, Funliner & Kingfisher (label mark). In 2009, global consultancy firm Grant & Thronton valued Kingfisher trademarks at Rs 4,111 crore or roughly $1 billion. In 2012, when the airline's licence was suspended by India's aviation regulator Director General of Civil Aviation (DGCA), Kingfisher Airlines valued itself at Rs 3,008 crore. The current value of the trademarks now stands at a mere Rs 6 crore! "We have put it up for sale. But have not received any satisfactory responses till now," according to official bank sources.
Year Brand value of Kingfisher Airlines Money owed to banks (estimated)
2009: Rs 4,111 crore : Rs 4,000 crore
2012: Rs 3,008 crore : Rs 7,000 crore
2014: Rs 6 crore : Rs 7,000 crore
The role of some banks is also quite suspicious. One of the banks under the radar of the CBI for its loans to Kingfisher Airlines is IDBI. CBI sources reveal that IDBI had extended loans to Kingfisher despite being warned by some board members not to do so. The result is that the bank has ended up with bad debts of Rs 700 crore. Curiously, IDBI gave the loan to Kingfisher after being pledged the airline's now 'junk' trademarks worth a mere Rs 6 crore!
Among the medium-sized banks, Bank of India is owed Rs 308 crore. The bank was mortgaged all the current assets of the airline. It included items like air conditioners, tractors and monetarily unsubstantial items like folding chairs. The bank has been struggling to recover even a fraction of its loan from the sale of Kingfisher's bag of random goodies. How could a bank give over Rs 300 crore after being pledged office stationary like boarding pass printers & folding chairs remains a mystery. BOI did not respond to dna's questions.
Sumanto Bhattacharya, spokesperson of UB Group, denies manipulating the banks, "There is no question of any deliberate undervaluation by Kingfisher Airlines Ltd as the banks themselves had conducted their own due diligence including the security available and also satisfied themselves about the viability of Kingfisher Airlines Ltd before undertaking the debt restructuring."
Documents accessed by dna show that Mallya had also given a personal guarantee of several other physical properties – one of which was his 'Hollywood' style Kingfisher Villa located at Candolim, Goa. SBI is awaiting a reply from the District Magistrate who has to give permission for police personnel to step in and help the bank recover the property. The application is yet to be even listed for hearing. Even if SBI gets physical possession of the property, all it will manage is to dent Mallya's ego. The value of the villa, though higher than Kingfisher trademarks, is barely a fraction of the Rs 1,600 crore that Mallya owes SBI.
Another one of 'irrecoverable' properties was Kingfisher House, measuring over 17,000 square feet in Mumbai's suburban Andheri locality, which was given as a personal guarantee by Mallya. The property was originally hypothecated to Punjab National Bank in 2010 and Kingfisher Airlines owes the bank Rs 290 crore. Kingfisher Airlines refused to part with the property and the matter is currently listed in the Chief Metropolitan Court in Mumbai after SBI filed an application under the securitisation and reconstruction of financial assets and enforcement of security interest (SARFAESI) Act, 2002.
Sumanto Bhattacharya, spokesperson of the UB Group, denies playing hardball, "Kingfisher House is owned by Kingfisher Airlines Ltd and not Mallya. Kingfisher Villa is owned by United Breweries (Holdings) Ltd and not Mallya. In any case, Kingfisher Airlines Ltd is a party defendant to proceedings filed in the Goa courts by United Spirits Ltd in respect of Kingfisher Villa and since the matter being sub-judice it won't be appropriate to comment on it."
Perhaps more curious is the case of Indian Overseas Bank. The airline owes IOB a sum of Rs 108 crore for which it had mortgaged two helicopters in 2008. IOB did not respond to dna's questions on the whereabouts of the choppers. It is believed that the Eurocopters were not in flying condition and the bank is struggling to dispose them of to recover its bad debts. IOB is now a loss-making bank having posted a Rs 516-crore loss this quarter.
There are other smaller banks in the consortium which have lent money to Kingfisher Airlines after being pledged the airline's current assets. Central Bank of India gave a term loan of Rs 350 crore on the condition that all sale proceeds and lease rents would be remitted in an escrow account with the bank. The airline was grounded within a year and the bank couldn't recover the money. Banks like Corporation Bank, State Bank of Mysore and Vijaya Bank gave loans of close to Rs 400 crore after being pledged all movable assets, movable assets and plant & machinery of the airline.
Many of the banks have reached a dead end. A realisation has dawned on them that Rs 7000 crore of public deposits they lent to Kingfisher Airlines have vanished in thin air. Chances of even recovering even a fraction of the amount seem to be fading by the day.
Link To DNA News Related To Kingfisher
I submit as under on faulty loan processing system and dirty culture of flattery and bribery prevalent in public sector banks which eventually results in loan becoming Non Performing asset and erosion in Bank's capital.
It is eye opening and heart breaking but not astonishing example of Kingfisher where value of securities is found to be Rs.6 crore only as against Rs.4000 estimated at the time of sanction of loan to Kingfisher Airlines. It is very common in loans of public sector banks. It is therefore not astonishing for bank officers who are well acquainted with the process of loan sanction taking place in public sector banks. It is however enough to make it clear to RBI officials, officials in Ministry of Finance and top ranked ministers in government how bank's top officials sanctions loans . It is irony but true that regulating officials are also of birds of same feather.
At the time of sanctioning loan to any corporate house or any individual or any businessman, value of collateral securities offered by loan seeker is fraudulently inflated by bribing valuer. It is not only the case of Kingfisher where value of collateral securities have come down from Rs.4000 crore to Rs.6 crore. One may find numerous Kingfisher type borrowers in almost all the branches of all the banks. Value of securities offered in inflated at the time of sanctioning of loan and the same property is valued at much lower value after five to ten years when there is default in loan and when banks adopt the process of selling the mortgaged property or hypothecated property.
Not only landed property mortgaged to bank as security for getting a loan sanction , even stock held in shops and godown by small scale industrialists or by traders and hypothecated to lending banks is found of no value or very less value when the loan default occurs and when banks decides to sell the hypothecated stock. At the time of sanction of a credit facility , banks use to keep margin . It means banks use to give loan upto the extent of 75% of value of stock or 60 % of book debts. But when default occurs, it is found by banks that stock value is not even 25 % of money lent and book debts are not real book debts or not recoverable. There is either lack of monitoring on the part of bank officials or fraudulent act in sanction of loan . Loan sanctioning officials more often than not work in nexus with loan seekers directly or through middle man or through suppliers of inputs to loan takers.
A property worth Rs. one lac may be valued Rs.5 lac Rs. 50 lac by valuer if the loan seeker is ready to pay higher fees to valuer . Similarly a team of Chartered Accountant prepare Financial statements as per need of bankers to suit financial needs of loan seeker.
Credit processing officer or Financial Analyst may give a suitable report to bank' top officials so that required amount of credit facilities are sanctioned to loan seeker without any problem. If sanctioning authorities are happy with loan seeking businessman,all good points are ornamentally placed before Credit Approval Committees. And on the contrary , if they do not like to sanction loan , all bad points are highlighted before higher authorities. Flattery and Bribe Culture is imbibed at all level officials and it is this culture which help to perpetuate corrupt practices in banks and that is why I often say that no power can stop rise of bad debts in Public sector banks.
All this is possible because in majority of high value cases , loan seekers first motivate top officials including Executive Director and Managing Director of the bank who then tactfully build pressure on subordinate General Managers and Deputy General Managers. This creates chain effect down the line. Not only this, even members of top level Managing Committees constituted for
approval of High Value Loans or members of Board of Directors empowered to sanctioned high value loans are purchased by unscrupulous loan seekers directly or through middlemen. Regional Heads or Zonal Heads in public sector banks work as agents of ED and CMDs of the bank. They dance as puppet in the hands of top officials who dacnce as puppet in the hands of powerful politicians and ministers.
Loan seekers apply all possible tricks and manages all concerned officials by hook or by crook. Loan seeker may manage required wine, wealth or woman for individuals involved in sanctioning process . But as soon as loan is sanctioned and disbursed , activity of loan seeker turned borrower changes and gradually he starts giving less value to officials involved in sanctioning process. After a few years , repayment starts but gradually stopped .
When loan goes bad, banks pass time for no reason but to accommodate borrowers and to give a safe exit or safe promotion to officials who were involved in process leading to sanction of loan.
During this period officers are promoted or transferred out of the branch . New comers declare the account as bad sooner o r later. Process of recovery starts and it is found that the value of collateral securities is not enough to recover the dues. It is then told that the value of property was inflated and hence cannot fetch sufficient value if bank go for applying SARFACIE act to sell off the property. Gradually borrower motivate bank officials to either write off the loan or enter in compromise settlement so that entire loan can be liquidated safely sacrificing 50 t0 90 % of total dues including interest. All banks under public sector have framed very liberal Recovery Policy which suits more to loan defaulters than to bankers.
To add fuel to fire, judiciary and police system is full of corruption where advocates play a pivotal role in keeping cases filed by banks for recovery of bank loan from defaulters for years and decades. None of acts framed by Government for recovery of bank loan or government dues is active and effective. Lacs of Cases filed for recovery of loans are languishing in various court for years and decades. This is the reason that when bad borrowers fail to manage bank officials , they try to manage judiciary and police to get rid of action till they die or till they dispose off all securities mortgaged to bank.
I submit as under on faulty loan processing system and dirty culture of flattery and bribery prevalent in public sector banks which eventually results in loan becoming Non Performing asset and erosion in Bank's capital.
It is eye opening and heart breaking but not astonishing example of Kingfisher where value of securities is found to be Rs.6 crore only as against Rs.4000 estimated at the time of sanction of loan to Kingfisher Airlines. It is very common in loans of public sector banks. It is therefore not astonishing for bank officers who are well acquainted with the process of loan sanction taking place in public sector banks. It is however enough to make it clear to RBI officials, officials in Ministry of Finance and top ranked ministers in government how bank's top officials sanctions loans . It is irony but true that regulating officials are also of birds of same feather.
At the time of sanctioning loan to any corporate house or any individual or any businessman, value of collateral securities offered by loan seeker is fraudulently inflated by bribing valuer. It is not only the case of Kingfisher where value of collateral securities have come down from Rs.4000 crore to Rs.6 crore. One may find numerous Kingfisher type borrowers in almost all the branches of all the banks. Value of securities offered in inflated at the time of sanctioning of loan and the same property is valued at much lower value after five to ten years when there is default in loan and when banks adopt the process of selling the mortgaged property or hypothecated property.
Not only landed property mortgaged to bank as security for getting a loan sanction , even stock held in shops and godown by small scale industrialists or by traders and hypothecated to lending banks is found of no value or very less value when the loan default occurs and when banks decides to sell the hypothecated stock. At the time of sanction of a credit facility , banks use to keep margin . It means banks use to give loan upto the extent of 75% of value of stock or 60 % of book debts. But when default occurs, it is found by banks that stock value is not even 25 % of money lent and book debts are not real book debts or not recoverable. There is either lack of monitoring on the part of bank officials or fraudulent act in sanction of loan . Loan sanctioning officials more often than not work in nexus with loan seekers directly or through middle man or through suppliers of inputs to loan takers.
A property worth Rs. one lac may be valued Rs.5 lac Rs. 50 lac by valuer if the loan seeker is ready to pay higher fees to valuer . Similarly a team of Chartered Accountant prepare Financial statements as per need of bankers to suit financial needs of loan seeker.
Credit processing officer or Financial Analyst may give a suitable report to bank' top officials so that required amount of credit facilities are sanctioned to loan seeker without any problem. If sanctioning authorities are happy with loan seeking businessman,all good points are ornamentally placed before Credit Approval Committees. And on the contrary , if they do not like to sanction loan , all bad points are highlighted before higher authorities. Flattery and Bribe Culture is imbibed at all level officials and it is this culture which help to perpetuate corrupt practices in banks and that is why I often say that no power can stop rise of bad debts in Public sector banks.
All this is possible because in majority of high value cases , loan seekers first motivate top officials including Executive Director and Managing Director of the bank who then tactfully build pressure on subordinate General Managers and Deputy General Managers. This creates chain effect down the line. Not only this, even members of top level Managing Committees constituted for
approval of High Value Loans or members of Board of Directors empowered to sanctioned high value loans are purchased by unscrupulous loan seekers directly or through middlemen. Regional Heads or Zonal Heads in public sector banks work as agents of ED and CMDs of the bank. They dance as puppet in the hands of top officials who dacnce as puppet in the hands of powerful politicians and ministers.
Loan seekers apply all possible tricks and manages all concerned officials by hook or by crook. Loan seeker may manage required wine, wealth or woman for individuals involved in sanctioning process . But as soon as loan is sanctioned and disbursed , activity of loan seeker turned borrower changes and gradually he starts giving less value to officials involved in sanctioning process. After a few years , repayment starts but gradually stopped .
When loan goes bad, banks pass time for no reason but to accommodate borrowers and to give a safe exit or safe promotion to officials who were involved in process leading to sanction of loan.
During this period officers are promoted or transferred out of the branch . New comers declare the account as bad sooner o r later. Process of recovery starts and it is found that the value of collateral securities is not enough to recover the dues. It is then told that the value of property was inflated and hence cannot fetch sufficient value if bank go for applying SARFACIE act to sell off the property. Gradually borrower motivate bank officials to either write off the loan or enter in compromise settlement so that entire loan can be liquidated safely sacrificing 50 t0 90 % of total dues including interest. All banks under public sector have framed very liberal Recovery Policy which suits more to loan defaulters than to bankers.
To add fuel to fire, judiciary and police system is full of corruption where advocates play a pivotal role in keeping cases filed by banks for recovery of bank loan from defaulters for years and decades. None of acts framed by Government for recovery of bank loan or government dues is active and effective. Lacs of Cases filed for recovery of loans are languishing in various court for years and decades. This is the reason that when bad borrowers fail to manage bank officials , they try to manage judiciary and police to get rid of action till they die or till they dispose off all securities mortgaged to bank.
It is really pity that top banks have spent two years even in declaring Kingfishers as Wilful Defaulter. Banks might have sanctioned loan to the tune of crores of rupees in few days of demand from Kingfisher Mr Mallya . But they are unable to default as default. It speaks much about legal and political culture of our country.
Government build pressure on banks for giving more and more loans but do not build pressure on legal and administrative officials to dispose off the cases related to recovery of loan. GOI imposes unachievable targets for bankers for disbursal of loan , but never consider it necessary to ensure quality lending and never think it necessary to punish officials who played foul game with bank in nexus with loan seekers to sever self interest. This is why volume of bad debts in PS banks is rising every quarter and it will continue to rise unabated.
Bankers may take punitive hard action against poor farmers, small traders, small scale industrialists who usually take loan limited to Rs. one crore , but bank can do nothing against who are high value borrowers, who avail loan from banks to the tune of hundreds of crores of rupees. Bank officials if they like honestly , can evaluate somehow or the other the real value of mortgaged securities if it is a case of small shop, small manufacturing unit or low value plant and machineries , but they cannot imagine of getting real value of high valued properties.
If a medium scale industry or large scale industry is financed by bank to the tune of crores and hundreds of crores of rupees, banks have to rely on value of stock declared by loan takers .There is no other value to assess and ascertain the granular value of all stocks and all securities spread over various godowns and various locations. Banks have to make finance on credit worthiness of the loan seekers or on the perceptions of loan sanctioning officials or on certificates fraudulently bought by loan seekers from Valuers, Advocates, Chartered accountants, Architect, Chartered Engineers on various parameters.
Government build pressure on banks for giving more and more loans but do not build pressure on legal and administrative officials to dispose off the cases related to recovery of loan. GOI imposes unachievable targets for bankers for disbursal of loan , but never consider it necessary to ensure quality lending and never think it necessary to punish officials who played foul game with bank in nexus with loan seekers to sever self interest. This is why volume of bad debts in PS banks is rising every quarter and it will continue to rise unabated.
Bankers may take punitive hard action against poor farmers, small traders, small scale industrialists who usually take loan limited to Rs. one crore , but bank can do nothing against who are high value borrowers, who avail loan from banks to the tune of hundreds of crores of rupees. Bank officials if they like honestly , can evaluate somehow or the other the real value of mortgaged securities if it is a case of small shop, small manufacturing unit or low value plant and machineries , but they cannot imagine of getting real value of high valued properties.
If a medium scale industry or large scale industry is financed by bank to the tune of crores and hundreds of crores of rupees, banks have to rely on value of stock declared by loan takers .There is no other value to assess and ascertain the granular value of all stocks and all securities spread over various godowns and various locations. Banks have to make finance on credit worthiness of the loan seekers or on the perceptions of loan sanctioning officials or on certificates fraudulently bought by loan seekers from Valuers, Advocates, Chartered accountants, Architect, Chartered Engineers on various parameters.
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