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Bankers refuse lifeline to troubled Kingfisher

BS Reporter / Mumbai/ New Delhi Feb 23, 2012, 00:51

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Kingfisher Airlines’ cup of woes is brimming, with lenders declining to extend further loans. The tough stand by the airline’s consortium of 16 lenders came on a day the State Bank of India (SBI) stock tanked 7.9 per cent on the Bombay Stock Exchange, the most in over three months, following media reports the bank had decided to throw a lifeline to the airline.

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But, SBI Chairman Pratip Chaudhuri told Business Standard the bank “has not given any fresh loans to Kingfisher. It is widely known that it is a sub-standard asset.”

Desperately cash-strapped, Kingfisher (with dues of over Rs 7,000 crore) stands on the brink of collapse after nearly a week of flight cancellations, resignations of many pilots and refusal of the income tax department to unfreeze its accounts. In its revised plan submitted to the Directorate General of Civil Aviation (DGCA) on Wednesday, the airline curtailed its operations to 175 flights a day with 28 aircraft, down from 360 flights with 64 aircraft in November.

Last week, the airline had made a case for a Rs 2,200-crore loan from banks to tide over the present cash crunch. A proposal was mooted that some of the banks, which were still to classify the loan as non-performing, could extend loans on a ‘pro-rata’ basis, that is, fresh lending in proportion to their existing exposure. Most of the banks, including SBI, Punjab National Bank (PNB) and Bank of Baroda, classified the account as a non-performing asset (NPA) during the October-December quarter.

UB GROUP STOCKS BSE price in Rs
	22-Feb	%chg*
United Spirits	570.90	-14.3
United Brew. Holdings	84.85	-9.7
UB Engineering	44.15	-6.8
Kingfisher Airlines	25.05	-6.5
Mangalore Chem.	41.00	-5.9
McDowell Holding	49.85	-5.0
United Breweries	454.30	0.9
lenders’ Stocks	Feb 22	%chg*
State Bank of India	2257.80	-7.9
Punjab National Bank	1026.30	-4.2
ICICI Bank	957.15	-3.4
* Over previous close  Compiled by BS Research Bureau

Bankers said the airline wanted a working capital loan of Rs 200-300 crore to pay income tax dues. Some fresh loans were also proposed to repay some banks, which in turn would enable banks to offer fresh lending. Bankers said they were not comfortable with the practice, known as ‘ever greening’.

The head of another public sector bank with exposure to Kingfisher said, “We will not extend any fresh loan until they clear the dues. Given the present state of the airline, it is not prudent to give any fresh loan.”

The market, however, wasn’t convinced. SBI was the biggest contributor to the more than 1.5 per cent drop on the Sensex and Nifty indices. Another major lender PNB declined 4.2 per cent to Rs 1,026.3. The state-owned bank owns 1.1 per cent in the airline, while ICICI Bank shed 5.3 per cent. The uncertainty over bank funding led to a hammering of the Kingfisher stock, which plunged 5.98 per cent to Rs 25.15.

Even trade unions have got into the picture. G A Nadaf, general secretary, All India Bank Officers Confederation and an SBI board member, said, “Bank funds are public money and we are not in favour of using this for assisting an account which is an NPA. There are no signs of recovery in the account.”

The banking regulator, meanwhile, sought to distance itself from the issue saying whether a bank should extend a loan was entirely its commercial decision. “Banks are commercial entities. If they feel a unit can survive if they support it, they must explore that possibility,” said RBI Deputy Governor K C Chakrabarty. “Banks are risk-taking entities”. The government, which owns about one-fifth of Kingfisher’s shares and roughly three-quarters of its debt through lenders, was non-committal.

When asked to comment on media reports about SBI offering a bailout loan to Kingfisher, Finance Minister Pranab Mukherjee said, "I cannot comment on it now. As and when events take place you will come to know." Civil Aviation Minister Ajit Singh said, "If the banks can loan them money, it is all good." Corporate Affairs Minister Veerappa Moily blamed bad governance and absence of professional management as the reasons for the carrier's problems. “You must have a professional management. You can't have individual decision-takers," Moily said.

The airline owes Rs 130 crore to the I-T department and Rs 43 crore in service tax to the government and has committed to pay the latter by March-end.

The I-T department has not taken any call on the airline’s commitment to clear its dues. “They have made commitments to clear the dues. Unless they make some interim payment, we will not unfreeze their accounts,” said a senior finance ministry official, who did not want to be identified.

The airline posted a loss of Rs 1,027.40 crore in 2010-11.

Meanwhile, it partially resumed its Kolkata operations on Wednesday. Four flights started from Kolkata, to Bhubaneswar (two), Bagdogra and Dhaka. “Today onwards, we are operating. February 26 onwards, all the flights will be operational,” said Girish Nair, airport manager of Kingfisher Airlines at Kolkata airport.