State Bank of India, the country's top lender, has not extended further loans to debt-crippled Kingfisher Airlines, a bank official said, denying reports that the state-owned creditor was close to offering a lifeline.

Several newspapers reported that State Bank of India (SBI) would throw a lifeline to Kingfisher, which is majority owned by liquor baron Vijay Mallya, giving figures ranging from Rs 2 to 16.5 billion.

"We have not given any fresh loans to Kingfisher," said SBI's deputy managing director R. Venkatachalam, who is responsible for managing the Kingfisher loan account. "All media reports are baseless and untrue."

The bank is also not considering giving any fresh loans to the carrier as of now, he said late on Wednesday.

Desperately strapped for cash, Kingfisher stands on the brink of collapse after nearly a week of flight cancellations and the resignation of dozens of its pilots.

Banking sources, with direct knowledge of the situation, earlier told Reuters the airline's consortium of 16 lenders, which includes SBI, were still studying a debt-restructuring proposal put forward last week.

Banks own about a quarter of the carrier through an earlier debt-for-equity swap. Shares in SBI ended down 8.1 per cent, their biggest single-day fall in more than two-and-a-half years, on concerns it was extending more credit to the beleaguered carrier.

India's second-largest airline until this year, Kingfisher has not turned a profit since it was founded in 2005 and is carrying a debt burden of at least $1.3 billion.

Its revenue has been in decline since the end of last year. Staff are not being paid and tax bills remain outstanding. A tax official said the airline's arrears for financial year 2011-12 were around Rs 400 million.

'NO GOVERNMENT LIFELINE'
Mallya has blamed his cash crunch on the tax authorities, which last week froze Kingfisher's bank accounts over its unpaid dues. On Wednesday, Finance Secretary R.S. Gujral denied media reports that the accounts had been unblocked.

Civil Aviation Minister Ajit Singh said Kingfisher Airlines could not expect the government to pull it back from the brink, as it did state-owned Air India.

"The government is not going to bail it out, but we hope Kingfisher can mobilise its resources somehow because if they don't then there will be more problems for the passengers," he told reporters.

Still, the government faces a dilemma over Kingfisher because it owns about one fifth of its shares and roughly three-quarters of its debt through lenders.

There are no provisions for companies to declare themselves legally bankrupt in India. Analysts said Kingfisher could simply shut down overnight if it fails to secure fresh equity that would shore up the sagging confidence of its creditors.

Kingfisher shares, which plunged nearly 20 per cent on Tuesday before recovering, ended down 6 percent on Wednesday.

Kingfisher will now operate 175 daily flights, down from 240 on Friday, a government source said. Only 28 of its fleet of 64 planes will be used. The aviation regulator has deregistered the carrier's 2 ATR planes at the lessor's request, the source said.

Its domestic market share has almost halved in recent months from about 20 per cent.

The regulator has also asked other airlines to accommodate passengers stranded by Kingfisher cancellations, the government source said. But state-run carrier Air India has refused to carry Kingfisher passengers on credit.

Mallya is also chairman of United Breweries (Holdings), a conglomerate with interests in aviation, breweries, biotechnology and real estate. The group has annual sales of more than $4 billion.

His airline - named after his famous brand of Indian beer - has become one of the main casualties of high fuel costs and a fierce price war between a handful of budget carriers which, between them, ordered hundreds of aircraft for delivery over the next decade in an ambitious bet on the future.

Five out of six major carriers are losing money, and analysts estimate that the industry overall is on course to lose up to $3 billion for the financial year ending next month.

Mallya, an independent member of the upper house of parliament, has blamed rules that bar foreign direct investment in Indian carriers and higher taxes on fuel for the industry's troubles.

The government is now debating a proposal to allow foreign airlines to acquire stakes of up to 49 per cent.