Tel­cos’ Share in NPAs a Con­cern

The Economic Times - - Companies: Pursuit Of Profit - Our Bu­reau

WRONG NUM­BER Sur­vey noted that Jio en­try had led to a bru­tal price war

New Delhi: Re­liance Jio’s en­try with free voice and data has led to a bru­tal price war in the tele­com in­dus­try, hurt­ing rev­enue and prof­itabil­ity of in­cum­bents amid bal­loon­ing debt, in­creas­ing the sec­tor’s share of non-per­form­ing as­sets, which is a cause for worry, the Eco­nomic Sur­vey said.

“With in­tro­duc­tion of Re­liance Jio In­fo­comm on 5 Septem­ber 2016, com­pe­ti­tion ex­tended from cheaper calls to cheaper data,” the Eco­nomic Sur­vey Vol­ume 2, re­leased Fri­day, said.

Jio's pric­ing scheme “forced in­cum­bent tele­com firms” to cut voice call rates and cost of 1 GB data to av­er­age $ 1.9 dur­ing Jan­uary-March 2017, the sur­vey added. Ad­justed gross rev­enue of the top three tele­com com­pa­nies in In­dia - Bharti Air­tel, Voda­fone In­dia and Idea Cel­lu­lar – fell se­quen­tially by 7.98%, 5.14% and 4.91% re­spec­tively in the third quar­ter of FY17.

The com­pe­ti­tion has “trapped the tele­com sec­tor into highly lever­aged with in­ter­est cov­er­age ra­tio turn­ing less than 1 since third quar­ter of 201617,” the sur­vey said. “How­ever, what's wor­ry­ing is that share of the tele­com sec­tor in the non-per­form­ing as­sets (NPAs) has now in­creased… the share of NPAs of tele­com sec­tor in to­tal NPAs of in­fra­struc­ture sec­tor in­crea- sed to 8.7% in 2016-17 from 5% in 201516,” it said. How­ever, the to­tal NPAs of tele­com sec­tor in pub­lic sec­tor banks fell to .₹ 2,335 crore from .₹ 3,465 crore in the same com­pa­ra­ble pe­riod.

The sec­tor has debt of nearly .₹ 5 lakh crore and the bank­ing sec­tor — which pegs debt at .₹ 7.29 lakh crore — is wor­ried that com­pe­ti­tion will lead to de­faults. As per the sur­vey, the mo­bile in­dus­try in In­dia ac­counts for 6.5% ($ 140 bil­lion) of GDP, and em­ploys over 4 mil­lion peo­ple di­rect and in­di­rectly.

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