Sergei Pugachyov's MezhPromBank failed to repay a eurobond on Tuesday in the country's first private bank default on an external bond in a decade.
Pugachyov has long been seen by market participants as a businessman close to the Kremlin and Prime Minister Vladimir Putin, but banking industry insiders have said his latest troubles may signal that he has fallen out of favor with the authorities.
MezhPromBank, or IIB, defaulted on a 200 million euro ($250 million) eurobond due in 2010, the bank said late Tuesday.
IIB, ranked among Russia's top-30 banks, has been the largest recipient of noncollateralized loans from the Central Bank, a bailout measure introduced in the early days of the global financial crisis.
The Central Bank stopped rolling over the debt and began restructuring discussions with IIB in June.
"While the debt restructuring is surely a negative development in itself, it does not reflect new problems building up in the banking system," analysts from VTB Capital said in a research note.
Pugachyov, who also represents the republic of Tuva in the Federation Council, has already agreed to sell some of his assets as part of a deal restructuring 32 billion rubles ($1.02 billion) in IIB's debt to the Central Bank.
"In particular, a limited extension of the maturity of the defaulting notes is one of a number of measures the company is considering," the bank said.
IIB also has a 200 million euro eurobond issue due 2013, about 500 million rubles worth of outstanding domestic bonds and $20 million of trade financing coming due over the next few months.
The bank has been seeking $600 million in loans from state-run VTB bank while Pugachyov hopes to close the deal on selling his shipbuilding assets by the end of July.
Some Russian banks defaulted on ruble bond issues in 2008-09, but IIB is the first private bank to default on an external debt issue since Russia's previous financial crisis in 1998.