Banking and Financial News – 23 May 2014

SBI Exploring Ways to Declare Vijay Mallya 'Wilful Defaulter': Report (NDTV Profit) - State Bank of India, which has an exposure of Rs. 1,600 crore to grounded airline Kingfisher, today said it is exploring ways to declare the carrier's promoter Vijay Mallya as a 'wilful defaulter'. The source said that as per RBI guidelines, it would have to be proven that the borrower had diverted funds which he taken from the bank and not paying up despite having the ability to pay. A person declared wilful defaulter would lose directorships in companies and would never be able to borrow further. SBI leads a 17-member consortium of lenders that is trying to recover dues running into over Rs. 7,500 crore in principal alone from Kingfisher Airlines. The source said that bank was also looking at attaching personal assets of Mallya.

Important Financial Terms in the News explained.

Wilful Defaulter - RBI defines a wilful defaulter as a borrower that is able but unwilling to pay, has diverted loan proceeds for other than their initially stated use, or has overstated profits in order to obtain a loan.

Consortium Finance - Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and follow-up exercises, these banks have a common agreement between them, the process is somewhat similar to loan syndication.

Loan Syndication - The process of involving several different lenders in providing various portions of a loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may either be too much for a single lender to provide, or may be outside the scope of a lender's risk exposure levels. Thus, multiple lenders will work together to provide the borrower with the capital needed, at an appropriate rate agreed upon by all the lenders. Mainly used in extremely large loan situations, syndication allows any one lender to provide a large loan while maintaining a more prudent and manageable credit exposure, because the lender isn't the only creditor. Loan syndication is common in mergers, acquisitions and buyouts, where borrowers often need very large sums of capital to complete a transaction, often more than a single lender is able or willing to provide.

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Courtesy : NDTV Profit