Indian creditor banks move in on Vijay Mallya's Goa mansion

Indian banks owed money by Vijay Mallya's failed Kingfisher Airlines are preparing to seize the liquor baron's prized Goa villa, one of the toughest actions ever taken against a high-profile tycoon who has failed to repay debts.

The beachfront Bali-style mansion, known as Kingfisher Villa, has been a favourite setting for the glittering parties hosted by the erstwhile "King of Good Times" - who is now better known for his bitter legal battles to fend off creditors of his collapsed airline.

Officials at State Bank of India, the country's largest bank, told the Financial Times that they are poised to file a formal legal petition seeking police help to take physical possession of the property, which they say was pledged as collateral against loans they extended to Kingfisher.

SBI, the largest lender to Kingfisher, has already been awarded "symbolic possession" of the villa by an Indian court, which prevents any sale of the property.

Once one of India's most popular carriers, Kingfisher Airlines never managed to turn a profit and finally collapsed in October 2012. It had about $2.5bn in accumulated debts, including money owed to its 4,000 employees, who were not paid for seven months before they finally revolted.

Since then, banks have been struggling to recover what they can from Mr Mallya and his other interests, including skirmishing over cash raised by the liquor baron's sale of his spirits business, United Spirits, to Diageo.

The attempt to evict Mr Mallya from his cherished Goa retreat comes amid intense frustration within India's banking system at tycoons living lavishly while insisting their companies are too financially strapped to service unpaid debts.

Raghuram Rajan, governor of the Reserve Bank of India, has fulminated against Indian corporate titans who treat state banks as private kitties, and expect lenient, kid-glove treatment in tough times, leaving taxpayers to foot the bill when businesses fail.

"Banks are trying to convey a message to India incorporated - if you borrow from us, you need to behave, and if you don't behave, we are willing to take a tough stand," said Sunil Kumar Sinha, economist from India Ratings, the local arm of the rating agency Fitch.

But Mr Sinha cautioned that banks could still face a protracted legal battle to take possession of Kingfisher Villa as Mr Mallya is likely to appeal every step of the way.

"It's not going to be easy," says Mr Sinha. "I'm not saying justice never gets done. Justice is delivered, but it's a lengthy and long-drawn process."

Banks' apparent effort to make an example of Mr Mallya comes at a time of growing financial stress, with Moody's reaffirming the negative outlook it has had on the Indian banking system since November 2011.

In a report this week, the rating agency warned the poor asset quality of Indian banks - especially public sector lenders, which account for 70 per cent of banking system assets - will require continued provisioning and capital buffers, leaving little room for new loan growth despite improvements in the economy.

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