"First we had sent the airline and its corporate guarantor a notice asking why the two entities should not be declared as wilful defaulters," a source in the bank told PTI.
Now, the airline has communicated that it wanted to know the basis of why the `wilful defaulter' tag was being attached to the company.
"We will certainly give them a reply and also ask whether Mallya was keen to represent his case before the grievance redressal cell or depute some lawyers," the source said.
He said that the bank was bound to give a reply in order to ensure principal of natural justice, adding that UCO had followed all the laid-down norms required for declaring anyone as wilful defaulter.
As per RBI guidelines, a person or an entity could be declared as wilful defaulter if it was found that repayment of loans was not done despite having the capacity to pay or there had been instances of diversion of loan funds taken.
The carrier had availed a loan of around Rs 350 crore (Rs 3.5 billion) to meet working capital needs, and United Beverages was the corporate guarantor.
Other banks like SBI, PNB and United Bank of India were also working on the same lines.
Earlier on September 1, state-owned United Bank of India became the first lender to declare the debt-ridden Kingfisher Airlines, its promoter Vijay Mallya and other directors, as wilful defaulters as the company allegedly indulged in diversion of funds by opening multiple accounts.
Later Kingfisher Airlines had said it has secured a stay from the Calcutta High Court on United Bank of India declaring the airline and its directors, including promoter Vijay Mallya, as wilful defaulters.
UCO Bank identifies KFA as wilful defaulter
Decoding wilful defaulter tag
Diageo reduces board rights of Mallya in United Spirits
Exchanges to suspend trading in Kingfisher, UB Engineering
UCO Bank not to allow lawyers to represent Kingfisher