After United Bank, Axis Bank and Federal Bank may also declare Vijay Mallya as ‘willful defaulter'

MUMBAI: The pressure on Vijay Mallya is likely to intensify as private sector lenders Axis Bank and Federal Bank may begin the process of declaring him a 'willful defaulter', putting them in a position to seize assets pledged as collateral and invoking personal guarantees.

This comes after state-owned United Bank declared Mallya and three directors of Kingfisher Airlines as willful defaulters on Monday.

The company owes banks Rs 7,000 crore. Other public sector banks that are owed money have already begun the exercise. "We are also in the process of declaring him as a willful defaulter," said a Federal Bank executive, who didn't want to be named.

"He is a willful defaulter for United Bank of India. Others will follow suit. We are putting out our demand for them to come and explain their stance. We will have to follow a process." Federal Bank has an exposure of around Rs 90 crore to the airline company while Axis Bank has an exposure of around Rs 50 crore.

"As a matter of policy, the bank doesn't speak about specific client transactions. We therefore regret our inability to comment on the referred matter," an Axis Bank spokesperson said. The lender is said to be considering such a move.

"Axis Bank like other banks can declare Vijay Mallya as a willful defaulter after following the due process," said a banker aware of developments. "Ideally, the bank should do it but a final decision is yet to be taken." A concerted move would threaten Mallya's remaining assets since a willful defaulter won't be able to get loans from any bank.

Mallya told ET on Monday that United Bank had not given him "an opportunity to hear my request for legal representation in the grievances redressal committee". He added: "Let them prove in court that I am a willful defaulter," he added. Prakash Mirpuri, vice-president, corporate communications, UB Group, told ET that a Delhi High Court ruling allows such legal representation.

With Reserve Bank of India governor Raghuram Rajan strengthening bad loan recovery and recognition norms, most banks are aggressively monitoring loan accounts. The central bank's initiative to set up the Central Repository of Information on Large Credits or CRILC -- where banks have to share data on all borrowers' credit exposures, including special mention accounts (SMA) with an exposure of Rs 5 crore and above -- has helped improve the loan recovery environment.

"The special mention account 1 and special mention account 2 credit information report is really making a difference in how people engage with large clients," said the managing director and chief executive officer of a private sector bank.

SMA1 categorises companies with principal or interest payments overdue 31-60 days. SMA 2 groups those with payments overdue 61-90 days. Kolkata-based United Bank was the first PSU lender to initiate the process of declaring Mallya and three other directors of the grounded Kingfisher Airlines as willful defaulters a few months ago. Subsequently, other lenders such as State Bank of India, IDBI Bank and the Punjab National Bank kicked off a similar process.

The grievance redressal committee, or GRC, of UBI has also declared directors Ravi Nedungadi, Anil Kumar Ganguly and Subash Gupte as willful defaulters. The grievance redressal committee meeting was convened after a Calcutta High Court division bench allowed the bank to initiate the process of declaring them willful defaulters last week.

As part of the recovery process, banks in February last year decided to sell a portion of the collateral with them, including shares of group companies United Spirits and Mangalore Chemicals & Fertilizers, Mallya's Goa villa, Kingfisher House in Mumbai and the Kingfisher brand, which was valued at more than Rs 4,000 crore at the time it was pledged.