Home / Companies / News /  SBI objects to airline licence for Gopinath’s new venture

State Bank of India (SBI), the nation’s largest lender by assets, has objected to budget aviation pioneer and serial entrepreneur G.R. Gopinath’s bid for a national airline permit on the grounds that a company he led hasn’t repaid its loans.

The letter by the state-owned bank to the aviation regulator indicates that lenders are stepping up efforts to recover money from grounded airline ventures such as Paramount Airways and Kingfisher Airlines, besides the Gopinath-led Deccan Cargo and Express Logistics Pvt. Ltd, which ran Deccan 360. The money that state-owned banks need to recover from airlines amounts to a total of around $1.6 billion (around 9,025 crore today).

The letter also represents a radical change in mindset among lenders who were once only too happy to go easy on borrowers. In 2011, in a sweetheart deal with Kingfisher Airlines, SBI and other banks converted 1,400 crore of debt into equity at a price of 64.48 a share, a premium of 35% to the prevailing stock price. Kingfisher was grounded by India’s aviation regulator in late 2012 and owes SBI 1,600 crore.

Gopinath, who sold his budget airline Air Deccan to Kingfisher in 2007, applied for a licence to start another airline in 2012.

Deccan 360 is a cargo airline that Gopinath set up in 2009. A year later, Reliance Industries Ltd became his partner by picking up a stake in the company. The outfit, which has two planes, didn’t get off the ground. Last year, Gopinath started Deccan Shuttles, a regional service in Gujarat, connecting small cities. It doesn’t operate any more.

“DCELPL (Deccan Cargo and Express Logistics) is a non-performing asset in our books since (28 August, 2011) with unpaid dues to SBI at 202.47 crore. Capt Gopinath and Mrs Bhargavi Gopinath have guaranteed the advance," the bank said in a 4 March letter to the Directorate General of Civil Aviation (DGCA) that hasn’t been made public. Mint has reviewed a copy of the letter, which refers to Gopinath and fellow directors.

“They are also defaulters to Syndicate Bank to the extent of 140.50 crore and to Axis Bank of 270.38 crore. Accounts at both these banks are NPA (non-performing assets)," said the letter from deputy general manager S. Sadashiva Bhat at SBI’s stressed assets management branch in Bangalore.

“The promoters of DCELPL have utterly failed to successfully set up their logistics business even after availing huge sums of loan funds from the three banks as mentioned above," it added.

Notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, has been initiated and after this process is complete, the banks will seek to recover the loans, the letter said.

“If they are given a new domestic licence for a low-cost airline, there is every likelihood of the investors and financial institutions getting encouraged to invest/lend huge sums of money to the new venture unsuspectingly. This will only pave way for further loss of public funds," Bhat wrote.

“In view of the above, we request that the... Directorate may please insist that the promoters of DCELPL first liquidate their loans dues to our bank and other lenders before the application of Capt G.R. Gopinath or any of the connected persons such as Mrs Bhargavi Gopinath... is taken up for consideration," he added.

A similar appeal was made by Syndicate Bank, which asked the regulator to “prevail upon the company to repay our dues before he is given any final clearance to start a new national airline", in a 11 March letter written by I.N. Raghavendra Bhat, general manager in the recoveries department of the Bangalore branch, which Mint has reviewed.

“Apart from the company above he has also started a sister concern Deccan Charters Ltd, which has also availed a subordinated debt of 50 crore from us wherein the present outstanding balance is 23 crore. This liability is also not serviced regularly and is continuously in irregular state as on date," Raghavendra Bhat wrote.

An Axis Bank spokesman did not reply to an email seeking comments on the bad loan.

Spokesmen for SBI and Syndicate Bank could not be reached for comments. Text messages and calls to their mobile phones remained unanswered.

Gopinath agreed that the businesses didn’t go according to plan, but said he doesn’t owe anything personally to the banks.

“I was promoter, but I don’t owe money to banks. The cargo logistics company does. And Reliance Industries is an equal partner and investor and holds as much equity as me. The company was run through a CEO jointly appointed by us. Things didn’t go as per plan," Gopinath said, adding he was planning to restructure debt and that he still has two cargo planes. He also paraphrased Confucius, by way of explanation of his business strategy: “Philosophically, the glory of man lies not in never falling, but in rising each time he falls."

In the past few months, DGCA has received complaints from several banks and other suppliers regarding the debt and dues of Paramount and Kingfisher.

IDBI Bank Ltd, Bank of India, SBI, Andhra Bank, Central Bank of India and Indian Bank have told the regulator they are owed more than 500 crore by Paramount. And Hindustan Petroleum Corp. Ltd has said it is owed 19.28 crore,.

Others looking to get paid by Paramount include Taj Madras Flight Kitchen, the Airports Authority of India (AAI) and Hindustan Aeronautics Ltd, according to a DGCA official who asked not to be identified.

Banks are trying to recover around $1.4 billion from Kingfisher Airlines, which is also fielding notices against it from GVK Power and Infrastructure Ltd that runs the Bangalore and Mumbai airports, AAI and tax men.

India’s airlines are labouring under rising debt, which rose 8-9% in 2012-13 to an estimated $14.5 billion, consulting firm CAPA Centre for Aviation said in its 2013-14 outlook report on traffic and financial performance released on 28 May.

Air India Ltd has the biggest share of debt ($8.9 billion), followed by Jet Airways (India) Ltd at $2.25 billion, Kingfisher Airlines Ltd at $1.8 billion, SpiceJet Ltd at $336 million, IndiGo at $176 million and GoAir at $147 million, according to CAPA.

A ministry official, who asked not to be identified, said Gopinath’s application for starting a new low-cost airline is pending and that he’s still to reply to queries on what action he has taken on a regional airline licence already granted to him a few months ago.

This official said the views of the banks, which come under the ministry of finance, will also have to be taken into account before any clearance is given by the aviation ministry.

State-owned banks are under intense pressure to cut burgeoning bad loans, and their gross non-performing assets have rocketed to 1.79 trillion in March 2013 from 1.31 trillion in March 2012.

“It’s only legitimate that banks need to protect their money in a sector which is not profitable and particularly to a company which has been loaned money, which has remained unpaid. In all fairness, defaulters must clear their previous outstanding before seeking fresh funds," said Jitender Bhargava, former executive director of Air India. “One cannot, however, stop an entrepreneur like Gopinath from starting an airline as long as the risks are entirely his own and do not involve taxpayers’ money because previous failures cannot be a guide to an entrepreneur’s future success."

Remya Nair contributed to this story.

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