New Delhi,  It was a contentious plan to repay overseas bondholders in full that brought what would have been India's biggest retail deal to a grinding halt, media reports said.

Debt-laden Future Retail Ltd.'s offshore bondholders -- a relatively smaller part of the creditor pool -- were promised 100 per cent payment in the rescue offer from billionaire Mukesh Ambani, according to people with knowledge of the matter. Indian lenders were asked to take a haircut of as much as 66 per cent, the people added, asking not to be identified discussing confidential information, Bloomberg reported.

The unequal treatment led to the move last week, when the local banks rebuffed the $3.2 billion offer from Ambani's conglomerate. Reliance Industries Ltd. announced the purchase plan in August 2020 but struggled to complete the transaction in the face of legal challenges mounted by Amazon.com Inc, which argued it had the first right of refusal contractually.

Bank of India and State Bank of India, the main bankers to Future Retail, didn't immediately respond to emails seeking comment on reasons for voting down the deal. Representatives for Future Group and Reliance also didn't immediately comment.

State-run lenders risked probes from federal agencies if they accepted these discriminatory terms, they said, explaining their preference now for a court-mediated insolvency process where bids are called in and there's no risk of them being accused of cutting a bad deal. Bank of India has already requested an Indian court to initiate the process, Bloomberg reported.

The hard-nosed decision by Indian banks has pushed the teetering Future Retail, which ran one of the nation's largest retail grocery chains before the pandemic struck, one step closer to bankruptcy. It has also taken the wind out of a tortuous two-year-old litigation between Reliance and Jeff Bezos-owned Amazon -- the e-tailer had started arbitration proceedings in Singapore to block the deal -- but left the door open for Ambani to snag these retail assets, possibly at an even cheaper price, under the bankruptcy process, the report said.

"Reliance and other parties could be eligible to bid for its assets by submitting their resolution plans" even if Future Retail ends up in bankruptcy, according to Satwinder Singh, New Delhi-based partner at law firm Vaish Associates Advocates. "This would also lead to moratorium on any or all ongoing arbitration proceedings against Future."