The banks had United Spirits stocks pledged as collateral against their loans to Kingfisher.
State Bank of India has sold more than 700, 000 shares of United Spirits Ltd.
Diageo and United Spirits initially started negotiations in 2008, but talks broke down the following year.
Since March 25, Kingfisher's lenders have invoked pledged shares in two UB Group companies-- United Spirits Ltd.
Diageo is in the process of acquiring a majority stake in United Spirits, India's largest spirits company.
The deal will help Mr Mallya reduce United Spirits' debts and free up funds for his embattled Kingfisher Airline.
He will hope that Diageo injects enough equity into United Spirits to lower its debt but does not take immediate control.
The downgrade comes at a time when United Spirits is in talks to sell the stake to British drinks giant Diageo.
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Diageo, whose brands include Johnnie Walker, Guinness and Smirnoff, will get a 53.4% share in Indian liquor baron Vijay Mallya's United Spirits.
Mr Mallya is also in discussion to sell a stake in United Spirits, an Indian distiller, to global drinks giant Diageo in an attempt to generate cash.
Two per cent of United Spirits shares were given as collateral to the State Bank of India-led consortium a few years ago when Kingfisher Airlines borrowed money to continue operations.
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If so, that would potential deal a serious blow to the proposed takeover of United Spirits by British liquor company Diageo, which sought to buy out the firm from UB Group last year.
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The industry's dominant global player, Diageo, is already at an advantage for the opening up of the market, with its recent distress sale purchase of a controlling stake in Vijay Mallya's United Spirits, the country's biggest distiller.
In what is a two part deal, Diageo will, in the first instance, buy 10% in United Spirits through a preferential allotment and 19.3% from Mallya who will retain a 14.9% stake and the title of chairman.
Leading the charge against the bill is Wendell Young IV, president of the United Food and Commercial Workers Local 1776 and chairman of UFCW of the PA Wine and Spirits Council.
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Last year it persuaded the United States' Patent Office to throw out a trademark challenge brought by Bacardi, a spirits firm now based in Bermuda and the maker of the world's biggest-selling rum.
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