State-run banks want to wrest control of Kingfisher Airlines' cash flows

MUMBAI: Government-owned banks have sought to wrest control of part of the cash flows of Kingfisher Airlines that is currently controlled by three of their private sector counterparts.

The bone of contention is money received by the loss-making airline from tickets bought through credit cards, said senior bank officials.

The officials, who spoke on condition of anonymity because the matter was still under discussion, said government run banks had argued that they had a stronger claim to credit card receivables as their exposure to the Vijay Mallyaowned airline was more than that of private banks. But the proposal has been rejected by the three private sector banks - ICICI, Axis Bank and IndusInd - whose loan agreements with Kingfisher stipulate that proceeds of tickets booked through credit cards go to them.

At a recent meeting, officials of public sector banks proposed the opening of a dedicated account, known as an escrow, at the State Bank of India (SBI) where the airline would deposit the proceeds of tickets bought through credit cards. The airline would have to reach an agreement with the settlement agencies such as Visa and MasterCard - to operationalise the escrow account, essentially overturning the loan contracts between the private sector banks and Kingfisher Airlines.

State Bank of India has lent about Rs 1,400 crore to Kingfisher Airlines as against Rs 450 crore by ICICI Bank and Rs 50 crore of Axis Bank. ICICI Bank did not respond to the email enquiry.

"We have no comments on the issue," a spokesperson for Axis Bank said. A bank official present at the meeting said, "As of now, there appears to be a rift between private and PSU banks because of the assumption that private banks are using the cash flows of credit card receivables to regularise their own accounts while PSU banks are precariously placed."

Even as the lenders continue to squabble over Kingfisher's cash flows, SBI has recently disbursed Rs 50 crore to the stricken carrier and urged other banks to soften their stand, the people quoted earlier said.

SBI Caps, the investment-banking arm of SBI that has been appointed by Kingfisher to devise a plan to rescue the airline, is expected to come out with its report by the middle of this month. A bank official present at the meeting expressed surprise at SBI's move to lend Rs 50 crore.

"There appears to be a bit of a U-turn by SBI. It urged other lenders to be more sensitive to the company while stating that they themselves have given a loan of Rs 50 crore post-crisis," pointed out a lender present at the meeting.

SBI Chairman Pratip Chaudhuri had earlier taken a stand that they will not lend additional money unless the promoter, Vijay Mallya, increases his equity contribution. "Before taking a further call on this matter, we first want to see that money (equity of Rs 400 crore) coming in," Chaudhuri had said in Kolkata within days of large-scale cancellation of flights by Kingfisher, an act that had sparked off the crisis.

Source: EconomicTimes