Banks to Take Control of Kingfisher Coffers

Banks will take control over the cash flow of Kingfisher Airlines -- a harsh step that lenders rarely take to protect their exposure.They will put in place a mechanism where the airline's earnings will flow into a single bank account which will be closely tracked to avert loan defaults.The decision was taken by the lenders in a hurriedly called meeting last week as the Vijay Mallya promoted airline hit the headlines after it cancelled 200 flights and asked the government for help.At present Kingfisher operates similar accounts,better known as escrow,with some foreign banks that are not its lenders.The company's earnings are parked in these accounts for servicing loans and payment of bills.But after the recent developments lenders have insisted that a new escrow account be opened with one of the lending banks,said a person on condition of anonymity."No decision has been on where the account will be opened,but there is some understanding ICICI will handle the cash flow through the escrow account.The details of the arrangement and how the account will function are yet to be worked out," said a banker.The designated bank will monitor the cash flows and use its discretion while releasing payments to fuel companies,lenders and aircraft maintenance firms."The idea is to ring-fence the cash flow so as to avoid defaults.The bank that will manage the cash flow will share the transaction details with other lenders so that there are no rifts among the lending banks," said the person.Industry circles think the move may be precursor to a corporate debt restructuring programme where lending banks jointly decide to reschedule loan repayments and lessen the borrower's burden.With oil companies asking the debt laden airline to clear its dues,banks are worried that the company will find it difficult to pay loan interests.According to another bank official,the lenders have decided to form a core group of five banks which will focus on finances of the company.The group includes State Bank of India,Bank of India,Bank of Baroda,Punjab National Bank and ICICI Bank.Airline Owes.600 cr to OMCs "There are as many as 13 lenders and it's not feasible to bring them all together.Therefore,a core group of lenders is being formed," said the banker.SBI,the lead lender,has asked the airline to bring in.400 crore fresh equity before any loan restructuring can be initiated.Less than a year ago,banks restructured close to.7000 crore loans to Kingfisher.Some loans were converted into equity and tenures were extended for the balance.It is estimated that the airline owes close to.600 crore to oil companies and over.200 crore to Airports Authority of India.