Mallya, UB must return Rs100 crore to Kingfisher: SBI

The troubled Kingfisher Airlines, which may have to shut down if its lenders don't bail it out, has been directed by the State Bank of India to reverse nearly Rs100 crore in guarantee commission it paid to promoter Vijay Mallya and UB Holdings as this is a regulatory violation, according to an Economic Times report citing three people familiar with the SBI's direction.

Lenders are seeking the reversal of transactions by the ailing airline as a pre-condition to consider the second round of bailout in as many years after it posted yet another quarter of losses.

"Mallya has agreed that they would not exercise the option," said a banker requesting anonymity. But it is not clear yet whether the past transactions are being reversed, says the report.

The carrier entered into an agreement with Mallya and his holding company, UB Holdings, where the airline had paid Rs49.48 crore and Rs58 crore respectively to them against the guarantees they had provided for the Rs7,000-crore loans from banks.

The airline, promoted by liquor baron Mallya, has been teetering on the brink of collapse for a few months amid cancelled flights and non-payment of salaries. Lenders are laying down strict conditions for the next round of funding as the airline failed to improve its performance even after loan restructuring.

Apart from pushing the banks to a disadvantage, it is also a regulatory violation when promoters get paid for what is essentially their business. "The system of obtaining guarantees should not be used by the directors and other managerial personnel as a source of income from the company,'' RBI has said.

"Banks should obtain an undertaking from the borrowing company as well as the guarantors that no consideration whether by way of commission, brokerage fees or any other form, would be paid by the former or received by the latter, directly or indirectly."