Here’s What Struggling Telecom Operators Owe Banks
Indian bank’s loans to the telecom sector could face elevated risk after the Supreme Court dismissed the petitions seeking review of the definition of adjusted gross revenue that makes operators liable to pay thousands of crores in pending dues.
Credit Suisse said banks have an aggregate exposure of Rs 1.3 lakh crore to the telecom sector. State Bank of India, HDFC Bank Ltd. and ICICI Bank Ltd. are among the lenders having a highest exposure by value to the industry, according to a JM Financial note.
According to Morgan Stanley, IDFC First Bank Ltd. has the highest exposure as a percentage of total loans at 5 percent or Rs 5,400 crore.
Two of India’s three largest wireless operators—Bharti Airtel Ltd. and Vodafone Idea Ltd.—owe more than Rs 50,000 crore in AGR dues to the government comprising spectrum usage charges and licence fees, among others.
WATCH | How AGR dues can change the telecom industry.
Bank Exposure To Vodafone Idea
The worries are bigger for lenders to Vodafone Idea as the wireless carrier’s promoters had indicated that it may have to shut down operations if they don’t get relief on the AGR dues.
These developments put at risk the existence of Vodafone Idea—something Aditya Birla Group Chairman Kumar Mangalam Birla warned about in December—and raises the prospects of a two-player telecom market, Rajiv Sharma, head of research at SBICAP Securities Ltd., said in an interview to BloombergQuint on Friday.
Yes Bank Ltd. has the highest exposure to Vodafone Idea, followed by Indusind Bank and State Bank of India.
According to Nomura, Vodafone Idea has Rs 22,500-25,000 crore of funded exposure and large quantum of non-fund guarantees for spectrum payments. For Indusind Bank, a full write-off will be 30 percent or 24 percent of the company’s pre-provisioning operating profit for financial year 2020-21, the brokerage said.
For State Bank of India, a full write-off will be 21 percent or 35 percent of FY21 pre-provisioning operating profit estimates, Nomura said. SBI’s ability to provide for these large hits, including Dewan Housing Finance Corporation Ltd., is better than others given Rs 15,000-16,000 crore of expected recoveries, the brokerage said. On a net basis, it still estimates a residual negative profit and loss impact over the next few quarters.