The Reserve Bank of India (RBI) has asked banks not to treat Kingfisher Airlines' brand as collateral since it is intangible. This is because the loan has turned non-performing for most of the banks.
Loans to the airline have become non-performing for a host of banks, including State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and Central Bank of India, among others.
Since the loan became sub-standard the first category of NPA banks had provided for 15 per cent of the loan value, assuming the asset was secured with the brand being treated as collateral.
According to bankers, the RBI has reminded them that for provisioning purposes, assets backed by intangible securities cannot be treated as secured. For unsecured assets, the provisioning requirement is 25 per cent in the sub-standard category.
"Banks accept a personal guarantee, brand, etc as collateral but those are used for recovery purposes. For provisioning purposes, assets backed by intangible securities are treated as unsecured," said the chairman and managing director of a public sector bank with exposure to Kingfisher Airlines.
Apart from the brand and promoter Vijay Mallya's personal guarantee, certain tangible assets such as Mallya's villa in Goa have been used as collateral.
Kingfisher is still struggling to pay its dues and banks are facing the grim prospect of the asset slipping into doubtful category
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