RBI asks banks not to treat Kingfisher Airlines brand as collateral

Posted By: Religare
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RBI asks banks not to treat Kingfisher Airlines brand
In the backdrop of dwindling financial condition and inability to pay loan on time, country's apex financial institution Reserve Bank of India (RBI) has asked banks not to treat Kingfisher Airlines brand as collateral as it is intangible.

The central bank has taken this step after most of the loan issued by the banks has turned non-performing assets.

After the RBI intervention, bankers will have to consider their exposure to Kingfisher as unsecured because as per bank norms, assets backed by intangible securities cannot be treated as secured. This means, provisioning requirement will shoot up by 25 per cent as in the case of sub-standard category— the first category of NPA.

State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and Central Bank of India are among leading lenders to the Vijay Mallya led troublesome airline.

Currently, these banks had issued 15 per cent of the loan value, assuming the asset was secured with the brand being treated as collateral.

However, the bankers have also used Mallya's villa in Goa as collateral, apart from his brand and personal guarantee as promoter.

In the past few weeks, speculation is rife that Vijay Mallya is in talk with global spirit major Diageo to sale some equity stake to generate some liquidity to revive the airline company.

Lenders are likely to meet with the Kingfisher Airlines management on Thursday to discuss future course of action and to know about the carrier's plan to raise equity capital.

This meeting is also very important as it is going to be first meeting between the lenders and the KFA management after the FDI liberalization in aviation sector.

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