GOING AFTER BAD LOANS Banks test personal guarantees, may spur M&As

Bangalore: India's public sector banks, which often tiptoed around corporate clients, are beginning to rattle the big fish of India Inc. In recent weeks, they have set out testing the strength of personal guarantees issued by millionaire borrowers in precedent setting moves.      For long, Indian promoters have issued such guarantees to lender banks in order to mobilize funds in crunch situations, and PSU banks had accommodated such borrowers. However, with their non-performing assets (NPAs) ballooning, the situation has altered dramatically.      A consortium led by State Bank of India (SBI) that has more than Rs 7,000 crore exposure to the grounded Kingfisher Airlines has started selling pledged shares of the beleaguered promoter Vijay Mallya in his group companies United Spirits and Mangalore Chemicals & Fertilizers.      United Bank of India on Thursday issued a public notice that it was selling the assets of Yash Birla-owned Birla Surya, after the promoters failed to pay outstanding dues of Rs 70 crore.      The Kingfisher lenders have sought legal opinion and are readying a plan to stake claim to assets that weren't pledged specifically towards the airline loan. The personal guarantees of the promoter covers all his assets, especially in a crisis-ridden loan account like Kingfisher, where the banks have little room to sell the assets of the troubled company.      So the lenders are looking at Mallya's personal assets, from his stud farms to the luxury sky villas, Kingfisher Towers he is building on his ancestral property in Bangalore. Kingfisher Towers is a 32-storeyed, 80 apartment luxury project with a sale value of up to Rs 2,240 crore.      The UB Group issued a statement to TOI that read, "Kingfisher Towers does not form part of any collateral given to KFA's banks."      Punjab National Bank CMD K R Kamath said he wasn't aware of any specific recovery steps regarding Kingfisher at the moment, since the issue was being handled at various levels within the bank and within the consortium. "When we look at invoking personal guarantees, we look at all the personal assets of the borrower, and not just what has been made available," Kamath said. PNB has an exposure of Rs 800 crore to Kingfisher Airlines.      Concerned over the rising levels of bad loans of various public sector lenders, finance minister P Chidambaram last month asked bankers to take firm steps to recover loans, saying that the country cannot afford to have "affluent promoters and sick companies".      "Any lenient step on NPA recovery would be looked down upon. If the banks are allowed to bailout NPA companies, it's the government that has to foot the bill. And the government is unlikely to finance sick loans when it is desperate to contain the fiscal deficit," said Sanjay Jain, director, Taj Capital, a New Delhi-based boutique investment consultancy firm. He added that, till date, the approach of public sector lenders towards invoking personal and corporate guarantees had been sedate, even though the laws adequately empowered them.      With PSUs tightening the noose around affluent promoters of sick companies, more merger and acquisition deals are expected rather than promoters just trying to restructure their debt. Earlier this week, Zuari Group picked up a 10% stake in Managlore Chemicals & Fertilizers, a company which the former is interested to acquire, after mopping up shares offloaded by Kingfisher's lenders.