SBI had offered to settle KFA loan issue with Vijay Mallya

MUMBAI: State Bank of India (SBI) is willing to have a one-time settlement of the Kingfisher Airlines loan issue with Vijay Mallya if he agrees to repay the outstanding principal amount along with some interest and legal fees, but the former liquor baron has put conditions which are unacceptable to the bank, its top official has told a parliamentary panel.

SBI chairman Arundhati Bhattacharya told the panel, which is scrutinizing amendments to debt recovery laws, that the bank has aggressively tackled the matter and is open to reaching one-time settlements if a debtor offers to repay the principal along with a reasonable amount of interest, sources said.

"We are not insisting on payment of interest upon interest," she reportedly told MPs. This led some members of the all-party panel to ask the SBI boss about the bank's stance on Mallya, especially whether the largest bank, which leads the consortium of PSBs that sunk money in Kingfisher Airlines, was ready for a one-time settlement with Mallya after taking a haircut.

She replied in the affirmative, but said that while Mallya had expressed his willingness to have a settlement he had ringed it with conditions which SBI could not accept, said a person familiar with the deliberations.

Bhattacharya stuck to her guns when some members mentioned reports about Mallya's counsel telling the Supreme Court that he was ready to pay Rs 6,000 crore against the Rs 4,900 crore he had borrowed from PSBs, the source said.

If the lenders' stance finds resonance with the political establishment, the latest development could mean a breakthrough in settling one of the most high-profile bad loan cases involving Indian industrialists.

When contacted, Bhattacharya declined to comment. "Parliamentary committee proceedings are privileged communications and I cannot comment or communicate on the same," she said.

Members of the panel also asked RBI governor Raghuram Rajan whether lenders were mandated by the central bank to take personal guarantees from promoters of corporate units they lend to, but Rajan said the RBI had not issued any such directive.

Advisers to Mallya's tottering UB Group have spoken about reaching an understanding with bankers on the broad contours of a possible settlement deal. This involves payment of the outstanding principal estimated at Rs 4,850 crore, an interest payout of around Rs 150 crore and the legal fees incurred by the lenders.

But they have cautioned that any settlement could move forward only if the political leadership agrees with the assessment of the bankers. Mallya, who is currently holed up in London and whose extradition India has sought, has become the symbol of the domestic banking system's fight to recoup loans from defaulting billionaires. A settlement would enable Mallya to return to the country.

Mallya's last settlement offer — the one publicly available at least — stood at Rs 4,400 crore. He had also said the proceeds from two legal cases involving UB Group companies, if decided in their favour, could be set aside towards repaying banks. In their auction notices, lenders have been showing the outstanding amount (including compounded interest) at Rs 6,963 crore as of February 2014. With penal interest, they have been claiming in excess of Rs 9,000 crore. They have managed to recover some of the outstanding by selling shares of alcoholic beverage companies pledged by Mallya.

Until now, lenders have not committed to any figure at which they would be willing to settle and have stated they wanted to know how much money is there upfront on the table. Banks had responded to earlier settlement offers by Mallya stating that the promoter of the defunct airline should come clean and disclose all his assets. They had also insisted on a clear timeline for repayment and a list of assets that are available for sale to realize the repayment. The lenders also insisted that the proposals cannot be laced with "ifs and buts".

TOI had earlier reported that Mallya was planning to sell shares in United Breweries, the country's largest beer maker, and also divest remaining shares in United Spirits, which he sold to Diageo Plc three years ago. Mallya's foreign partner and Dutch brewer Heineken has the right of first refusal on his shares in the beer company. Diageo or any large institutional investor could be the buyer for residual stake in USL. Again, most of Mallya's assets are frozen by various courts and need to be released to raise the required cash for settlement.

Bankers say that in a delayed resolution there are no winners. Most of the movable assets, including small aircraft which are not repossessed, have been impaired so badly that they have been rendered worthless. There are no takers for the brand. The airline has lost its landing slots. An auction of Kingfisher's erstwhile headquarters failed to attract any bids at the reserve price of Rs 150 crore, forcing the lenders to bring down the price to Rs 135 crore. An auction of Mallya's grounded luxury aircraft also failed with a measly bid of Rs 1 crore.