India’s big banks should swallow any pride and accept Vijay Mallya’s settlement offer. The liquor baron has turned into a poster child for the country’s bad debt problem.

He has offered to repay lenders $603 million (₹4,000 crore), or roughly 43 cents on the dollar, to clear up dues worth around $1.4 billion owed by his now defunct Kingfisher Airlines.

Mallya might have capacity to pay back more but the offer is too good for banks to ignore.

Typically, lenders to troubled entities in India come out with significantly less. The World Bank reckons creditors on average recover just 25.7 cents on the dollar at the end of insolvency proceedings, one-third the level for high-income OECD countries. The Bank says it also usually takes more than four years to resolve such disputes in India. The airline backed by the self-styled ‘King of Good Times’ was grounded in 2012.

The state of India’s courts is another reason to accept Mallya’s pledge. Appeals can drag on for an age. Banks have power to repossess fixed assets but it is common to have disputes over collateral, as lenders to Mallya have found.

An ambitious new bankruptcy code aims to wrap up the insolvency process within 180 days but it still needs to be passed by the country’s Parliament and looks challenging to implement.

Mallya has offered to pay the banks by September, and pay half as much again if his airline wins a separate lawsuit seeking damages from an engine-maker.

It is hard to know if the tycoon, who is currently out of the country and remains a sitting member of Parliament, will keep his word. But his return to India may depend on it.

Big state lenders might be reluctant to take a hefty haircut for fear of setting a precedent in a high-profile case. Yet they are also partly to blame for the bad debt problem after years of cozying up to powerful politicians and businessmen.

Taking the moral high ground now could leave them with even less to show for it.

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