Why is SBI going easy on Kingfisher?

The country's banking sector may be reeling under its worst non-performing assets (NPA) crisis in a long time but it does not appear to have added to any sense of urgency to state-run State Bank of India's approach towards handling one of its key non-operative accounts.

Moneycontrol Bureau

On Wednesday, DNA reported how officials from the Central Bureau of Investigation had to return empty-handed when it asked the country's largest bank for details regarding loans given to the now-grounded Kingfisher Airlines .

Sources told the newspaper SBI did not cooperate with officials from the investigative agency and reportedly said that "there was no fraud involved [in the Kingfisher case] and that it was simply a case of business failure".

Kingfisher, owned by Vijay Mallya's UB Group, was launched with much fanfare in 2005 but failed to turn over a single rupee in profit ever, and instead ran up a mammoth Rs 7,000-crore debt burden that it owed to mainly public-sector banks.

SBI has formed a 17-bank consortium that is trying to recover its loans from the carrier and while the bank has previously claimed it has already it has recovered about Rs 400 crore out of the Rs 1700 crore it owes.

But there have been questions over the willingness of SBI to try and recover loans it owes to Kingfisher.

For instance, SBI has claimed it has taken over the brand, said to be worth Rs 200 crore, but that can only be classified as an intangible asset, DNA quoted a banking expert as saying.

The bank also did not take any concrete steps to recover the loan after it classified the Kingfisher account as a 'bad debt' for the first time in January 2012 and failed to convene a meeting of the consortium, the report added.

In the wake of the worst economic slowdown in a decade, NPAs have soared for the Indian banking sector. According to a report, net NPAs for the 40 banks listed in the stock market jumped 38 percent (year-on-year) in the first six months of FY14 to Rs 1.28 lakh crore.

In this, public sector banks have been reported to be facing a worse situation than private banks. Several media reports have chronicled a host of questionable practices prevailing at state-run lenders that have clearly contributed to their NPA woes.

In one particular instance, a senior official at SBI, who handled Kingfisher among other accounts, was asked to go on leave after the CBI registered a case of graft against him. The employee was accused of handing out loans in lieu of personal gifts such as expensive watches.

SBI stock price

On May 14, 2014, at 14:09 hrs State Bank of India was quoting at Rs 2274.80, down Rs 1.45, or 0.06 percent. The 52-week high of the share was Rs 2469.25 and the 52-week low was Rs 1452.90.

The company's trailing 12-month (TTM) EPS was at Rs 149.34 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 15.23. The latest book value of the company is Rs 1325.34 per share. At current value, the price-to-book value of the company is 1.72.