Banks link fresh funds to Mallya's ouster from boards

A top SBI official said this was part of an aggressive action by the lenders after Kingfisher Airlines defaulted on payments on loans worth Rs 7,000 crore (Rs 70 billion).

State Bank of India has advised all companies in which UB Group chairman Vijay Mallya is a director that it will be difficult for the bank to lend fresh funds if Mallya remains on the board.

This means Mallya, who is on the board of United Breweries and United Breweries (Holdings), or UBHL, might have to resign in the near future from companies where he is a director and want to access bank funds.

A top SBI official said this was not an isolated action and was part of an aggressive action by the lenders after Mallya-owned Kingfisher Airlines defaulted on payments on loans worth Rs 7,000 crore (Rs 70 billion).

Lenders will take an adverse view of Mallya’s presence on any board, the SBI official said.

Kolkata-based United Bank of India, which had earlier declared Kingfisher Airlines and its four directors, including Mallya as wilful defaulters, on Tuesday identified UBHL, the guarantor of the grounded Kingfisher Airlines, also a wilful defaulter.

On Monday, Mallya had resigned from the board of Mangalore Chemicals & Fertilizers as a director without citing any reasons. Banking sources confirmed that any fresh loans to MCF would have been a problem had Mallya remained on the board.

Text messages and emails to Mallya seeking his comments did not elicit any response.

If Mallya resigns from all the boards, it will be a big setback for the former “king of good times” who sold off United Spirits to Diageo last year. It’s not clear whether Mallya will have to resign as director from the boards of multinational companies such as Sanofi India, Bayer CropScience and United Spirits.

A source in one of the MNCs where Mallya is a director said the company has not received any communication from SBI as yet.

The source added that no MNC would like to have a 'wilful defaulter' on its board.

Interestingly, the share prices of UBHL (a Mallya-owned holding company) shot up by 20 per cent on Tuesday, while the share price of United Breweries -- a beer-making joint venture between UB and Scottish & Newcastle -- was up 8.11 per cent on rumours that UB group was exiting from United Breweries.  

On Monday, the now-collapsed Kingfisher Airlines informed stock exchanges that the corporate affairs ministry had rejected its application for the Centre’s approval for the re-appointment of Vijay Mallya as the firm’s managing director for five years from October 16, 2013, without remuneration.

Image: Vijay Mallya; Photograph: Reuters