Court helps them recover Kingfisher loans
The Bombay High Court?s decision on Tuesday, to allow creditors to sell shares of United Spirits Ltd (USL), pledged with them as collateral against loans given to group company Kingfisher Airlines (KFA), comes as a shot in the arm for banks. While the lenders had started selling the shares in the market, they can now continue to do so and recover some part of their dues of close to R8,000 crore; banks had 3.5 crore shares in USL, worth R6,500 crore at Tuesday?s price. What came as a surprise was that United Breweries Holding?a Vijay Mallya company?had appealed to the court asking that banks be refrained from selling the shares; the counsel for the group argued that banks hadn?t given it sufficient notice before selling them. If banks have to put up with this kind of resistance to get back what is rightfully theirs, the recovery climate in the country can only get vitiated. To that extent, the court?s decision is to be welcomed because it reinforces the right of the banks to use their collateral the way they want.
Indeed, while the legislation in place to help banks get back their money?whether the Sarfaesi Act or the Debt Recovery Tribunal (DRT) mechanism?is well thought out and enabling enough, the legal process can, at times, be lengthy and tedious. It is not too often that banks are able to realise too much money by selling either plant and machinery hypothecated to them, or even inventories because the process is time-consuming, resulting in the value of the assets falling sharply. The strike rate, according to bankers, is at best 60%. What has helped banks recover some of their dues, in recent times, is a sharp appreciation in the value of land. However, lenders don?t always get enough cooperation from the police and local administration while disposing of the assets and cases in the DRT can drag on for years. Also, holding shares as security can be tricky?while the value of the USL stock has held up with global spirits major Diageo having struck a deal with the promoter to buy into it?bankers took a big hit when they converted a part of Kingfisher debt into equity.
While there is no doubt that banks have to be careful while lending and that they also need to provide more prudently than they have been doing so far, the recovery process must work smoothly; with net non-performing assets in the banking system estimated to be close to 4% of total loans outstanding of R45 lakh crore and restructured loans estimated to have hit 6% of assets at the end of March, it?s important banks are supported in their attempts to recoup losses.