How Vijay Mallya fooled Banks
While the Government and Opposition figure it out as to how Vijay Mallya famously called 'The King of Good Times' flew away from India while he still owns thousands of crores to 17 public sector banks, here is how Vijay Mallya turned into 'The King of Bad Times'.
Who is Vijay Mallya:
He is a businessman and Member of Rajya Sabha. Being a son of Vittal Mallya a businessman from Bantwal, Karnataka, he became Chairman of United Breweries Group in 1983 when his father passed away.
From 1983 on Vijay Mallya expanded his father's business and made it into a conglomerate of over 60 companies. The UB Group as he called it increased annual turnover by 64% in little over 15 years.
Mallya focused on core business of beverage alcohol but also diversified by acquiring Beger Paints, Best and Crompton, Mangalore Chemicals and Fertilizers, The Asian Age and Cine Blitz.
His company's beer brand Kingfisher has 50% market share in India and it is sold in 50 plus foreign nations. In 2005 he started Kingfisher Airline which brought about his downfall.
In eight years of operation Kingfisher Airline never once registered profit. He became an independent MP in Rajya Sabha in 2002 representing the state of Karnataka. Since then he has been member of numerous committees of MPs.
Downfall of Vijay Mallya:
Kingfisher Airline which was at one point in time the second largest airline in India had very little chance or revival as it has an accumulated loss of more than Rs. 16,000 crore by March 2013.
The banks that lent money to Mallya for Kingfisher Airline allege that Mallya diverted around 4 thousand crore to places like Mauritius and Cayman Islands which are called tax havens.
Banks have labelled him as a 'wilful defaulter' as he has not been repaying the money his company owns but has been living a lavish life and spending money on personal luxuries.
Banks lent money to Mallya against movable property, current assets:
To borrow money for Kingfisher Airline, Mallya had given his brand name Kingfisher as collateral to the nationalised banks.
In 2010 while borrowing more to revive Kingfisher Airline Mallya had signed a deed that allows SBI ownership of all trademarks and goodwill if the airline fail to repay the debts. Today the trademark and goodwill will get SBI 6 crore as against 1,600 crore that it has lent.
If we take the case of IDBI it now has a bad loan of Rs. 700 against the name of Kingfisher Airline. The asset pledged with IDBI is the airline's trademark and goodwill.
Bank of India had allowed Kingfisher Airline loan against the current assets which include items like air conditioners, tractors and even folding chairs. (Wish students who borrow education loan and other small business owners were allowed to pledge in such a manner.)
Indian Overseas Bank had lent a sum of Rs. 108 crore to Mallya for which he had mortgaged two helicopters in 2008. Tragedy for bank is that the helicopters are not in flying condition and bank is not able to sell them off to recover the money.
Bank of India had given a term loan to Mallya the condition of the loan was that all sale proceeds and lease rents will be used to pay the loan back. The airline was grounded ery next year and now bank has no means to recover the money.
Corporation Bank, State Bank of Mysore and Vijaya Banks had given loans to Mallya against movable assets and plant and machinery of the airline.
Good Times for Mallya continues:
After defaulting on loans worth thousands of crore Mallya had recently announced that at the age of 60 he intends to spend more time with his family in the UK. Mallya resigned as United Spirits Chairman after an agreement that he will receive $75 million for the same from Diageo plc and United Spirits Ltd.