Vijay Mallya saga: Endgame for ‘the King of Good Times’ but what next for his lenders?

The endgame appears to be nearing for fugitive liquor baron Vijay Mallya. With a UK Court dismissing Mallya’s latest plea on Monday, investigative agencies might be panting in anticipation at Mallya's impending extradition to India soon.

But after four years of Mallya’s exit, what does his return mean for about 17 Indian banks that have over Rs 10,000 crore (including the accrued interest amount) in combined exposure to Mallya’s defunct Kingfisher Airlines?

In a series of tweets Mallya said he is “naturally disappointed” with the UK court’s decision. “I will continue to pursue further legal remedies as advised by my lawyers,” said the former Kingfisher boss. Mallya argues that he owes only about Rs 6,200 crore to banks and claims that lenders have recovered Rs 2,500 crore already. But, banks do not agree.

According to senior banking industry officials, there is a great deal of uncertainty on the recovery of money even if Mallya is brought back to the country. “Let me put it this way. Banks have done almost everything possible including putting up his personal assets for auction. Despite all of this, there has been no significant recovery so far. Unless Mallya himself decides to pay up the full amount, there is very little hope left,” said the banker who didn’t want to be identified.

Until now, banks have not recovered even a fraction of the amount what Mallya - who has denied wrongdoing - owes to them. Bankers said the original Rs 9,000 crore that was lent to Mallya has now grown to Rs 10,000 crore at least, which includes the accrued interest amount.

The Rs 10,000 crore, according to bankers, is a conservative estimate. The actual figure could be more. In a typical loan default case, banks wouldn’t wait for things to worsen to this stage and interest burden to escalate. They initiate legal process at the first sign of default and approach the relevant courts for recovery.

In Mallya’s case, bankers acted too late. Theoretically, the lenders can still sell his shareholding in companies and recover money. Since Mallya's real estate assets, which include a Mumbai office property, his cars and other personal belongings, wouldn’t fetch much value, banks are pinning their hopes on acquiring Mallya’s stake holding in United Spirits and United Breweries.

Mallya's holding in United Breweries is 11.04 percent which has a value Rs 2,696 crore and that of United Spirits (1.52 percent) at Rs 582 crore. In total, if banks manage to sell these share holdings on April 20, banks would get Rs 3,278 crore.​

But selling these shares and recovering money isn’t that easy.

A ‘wanted’ figure

There are multiple cases in various Indian courts filed by banks and the Enforcement Directorate (ED). “Both the ED and banks want a share of these assets. There is no clarity,” said a former chairman of a state-run bank that was part of the Kingfisher loan consortium.

But another banker said lender indeed had the first right on the proceeds from the sale of assets, and the ED can claim only those assets where financial fraud is involved.

In the last four years, Mallya has repeated his offer to banks to pay back the principal amount to banks. “I request the banks with folded hands, take 100 percent of your principal back, immediately," Mallya said outside the Royal Courts of Justice in London early this year.

But banks, which have dealt with him in the past, don’t attach too much importance to this offer. “These are just statements. Don’t read too much into it. Where is the money?” asked one of the senior bankers on condition of anonymity.

The great escape

Mallya, once the poster boy of Indian civil aviation industry, left for the UK on March 2, 2016. This was just hours before a consortium of banks rushed to the Supreme Court seeking his detention and the immediate repayment of outstanding dues on loans. Mallya's debt to banks was a result of a series of borrowings in multiple installments to keep Kingfisher alive.

Since his flight to the UK, Mallya, 64, has been waging a legal war against his lenders, investigators and the Ministry of External Affairs (MEA) by disputing charges of financial fraud and wilful default leveled against him.

The MEA, in April, 2016, revoked his passport. Several rounds of hearings in British and Indian courts have happened since then, which led to Mallya being arrested and released within hours multiple times. While the court room drama continues, the banks have become sitting ducks as no money has come back to them yet.

On February 18, the Supreme Court adjourned a plea by Mallya that was seeking a stay on the proceedings initiated by the ED to declare him a fugitive economic offender and confiscate his assets. The matter was scheduled to be heard in March after the Holi break of the court but the lockdown meant to control the spread of COVID-19 have hindered the hearing to take place. To cut a long story court, in the long legal battle, the flamboyant son of Vittal Mallya has so far managed to have a clear upper hand over his legal opponents. That is till today’s UK Court decision.

How the cookie crumbled for banks

There was a time when banks queued up before Mallya's office to gift him loans, with or without collateral. For them, Mallya's name was enough to sign the disbursal forms. There were 17 banks headed by country’s largest lender State Bank of India (SBI), which lent money to Kingfisher over a period of few years (both fund based and non-fund) and issued fresh funding lines when Mallya’s company was struggling to stay afloat.

Close to Rs 1,700 crore was disbursed by SBI, the lead bank of the group, while IDBI Bank gave Rs 900 crore. Other banks, a mix of state-run and private lenders, contributed a few hundred crore each. Much of the loans was given based on a personal guarantee of Mallya. The other collateral included the Kingfisher brand — one of the rarest cases when a huge sum was lent to a corporate just against the brand name.

These banks later converted a sizable chunk of loans into equity. SBI and ICICI Bank had converted Kingfisher's shares at Rs 64.48 each, which was at a 60 percent premium to then prevailing market price. The prices crashed to reach penny stock values within 16 months.  Kingfisher has since been de-listed from the exchanges.

Clearly, banks wouldn’t earn anything by selling these shares. Neither can they think of reviving the company for the simple reason that they know nothing about the business of aviation. So if they were to recover any loans, they should have sold the shares quickly. This didn’t happen.

A defiant man

Mallya has never conceded defeat to banks or investigative agencies at any point of the long legal battle of four years. The loans to Kingfisher turned bad in 2012. Since then, no repayment has happened; instead, Mallya has engaged in a war of words with lenders to prove his point that the bad loan happened due to his business failure, not financial fraud.

Indian banks and investigators have not been able to make a watertight case against Mallya yet in the UK. The liquor baron, who lives in his UK mansion with his family, once made it clear that, “By taking my passport or arresting me, they are not getting any money”. During his good days, Mallya used to be called as the 'King of Good Times'. He still is.

The Mallya-Kingfisher episode is a big lesson in their career for the bankers involved. Most of the bankers who had initially negotiated with Mallya on the loans given to Kingfisher, have retired from service. They secretly admit that they have gone wrong in the credit evaluation process. Bankers forgot the golden rules before the flamboyant liquor baron and lent to an airline that never made profits in its eight years of existence.

Even after the red signals were flashing, banks acted too late on recovery, and paid a heavy price for that. The Kingfisher episode has acted like an eye opener to their successors in office. New generation bankers are now more cautious on similar cases and are not leaving anything to chance.

The Jet Airways, DHFL cases are example. But, Kingfisher will remain as an unhealed wound for Indian lenders. Four years after his exit, the liquor baron who loves sports cars and luxury yachts, still remains elusive, and the Rs 10,000 crore he owes to the banks: a distant, fading hope.