Kingfisher Airlines: Too big to fail, too big to save

"If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem," quipped J Paul Getty, the billionaire American industrialist and founder of the famous Paul Getty Museum in Los Angeles. Substitute rupees for dollars and the statement could well come from Kingfisher's Vijay Mallya who, like Getty, is known for his fondness of the good life.
Not that Mallya is likely to make such a statement, not now when he is in the eye of the storm! Indeed, he is on record that he does not intend to seek any bailout. "We've not asked the government to dip into the taxpayers' coffers to bail out Kingfisher. We've never done that; we will never do that," he reportedly said.
He was being economical with the truth. The major exposure to Kingfisher is of public sector banks. So, any loss they suffer when Kingfisher Airlines fails to pay its dues or even delays repayment is taxpayer loss, no less. Having lent around Rs 7,000 crore to the airline, the 13-member consortium of lending banks now faces the unenviable task of deciding whether to provide yet more funds to the airline or call up their loans. The former could be an option but only if banks could be sure Kingfisher would not end up as a basket case; that it would not be a case of throwing good money after bad. Can they?
That is the real dilemma. Getty's remark sums up neatly the plight of banks when they lend to companies that are both too-big-to-fail and too-big-to-save. Failure has serious consequences as it means large write-offs while any effort to save entails giving yet more bank credit without any certainty about repayment.
21/11/11 Mythili Bhusnurmath/Economic Times

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Categories: Kingfisher Nov 2011