Bankers cannot escape blame for the bad-loan mess at Kingfisher Airlines. Why did they fund Vijay Mallya’s never financially solvent airline?
Kingfisher’s gross block (investment in fixed assets) was always a fraction of its total debt and the gap widened with each passing year (see chart). Thus, the banks never had the option to sell its assets and recover their dues in a default. Compare it to the amount of documentation and collateral that banks ask from individual borrowers.
Beside, the airline reported operating profit only once (a meagre Rs 33 crore in FY11) since it began operations in 2005. It depended on new borrowing to service past debt, including interest payments. In essence, bankers were throwing good money after bad. Competitors were treated differently. Jet Airways’ gross block always exceeded its debt liabilities, providing full coverage to bank loans. Jet reported operating loss only twice in the past 15 years — it never had to borrow to service past debt.
14/03/16 Krishna Kant & Anup Roy/Business Standard
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Kingfisher’s gross block (investment in fixed assets) was always a fraction of its total debt and the gap widened with each passing year (see chart). Thus, the banks never had the option to sell its assets and recover their dues in a default. Compare it to the amount of documentation and collateral that banks ask from individual borrowers.
Beside, the airline reported operating profit only once (a meagre Rs 33 crore in FY11) since it began operations in 2005. It depended on new borrowing to service past debt, including interest payments. In essence, bankers were throwing good money after bad. Competitors were treated differently. Jet Airways’ gross block always exceeded its debt liabilities, providing full coverage to bank loans. Jet reported operating loss only twice in the past 15 years — it never had to borrow to service past debt.
14/03/16 Krishna Kant & Anup Roy/Business Standard
