Lenders pre­pare for the worst-case sce­nario

Say loans may not im­me­di­ately turn bad, but a big chunk of it even­tu­ally could


Tele­com loans may not turn into bad debt im­me­di­ately, but a big chunk of it even­tu­ally could, fear bankers and an­a­lysts. Tel­cos owe banks at least ~1.8 tril­lion, in which fund-based ex­po­sure is about ~1.24 tril­lion.

With the Supreme Court adopt­ing a tough stance on tele­com dues, banks are brac­ing up for a mas­sive spike in their stressed loans. “It is now for the tele­com com­pa­nies to de­cide how will they find the money or what course of ac­tion they will take,” said State Bank of In­dia (SBI) Chair­man Ra­jnish Ku­mar, on the side­lines of Nass­com sum­mit.

The bank’s funded ex­po­sure to the tele­com sec­tor was ~37,793 crore at the end of the De­cem­ber quar­ter (Q3), ac­cord­ing to the bank pre­sen­ta­tion. Ku­mar said SBI had non-per­form­ing as­sets (NPA) of ~9,000 crore in the sec­tor, which has been fully pro­vided for, and the bank even ex­pects some re­cov­ery.

SBI, how­ever, did not set aside pro­vi­sion on the ‘stan­dard as­sets’, or the part that is reg­u­larly ser­viced. But the bank is also har­bor­ing no il­lu­sion. “We are pre­pared for the worst sce­nario,” Ku­mar said.

The SBI chair­man, in many ways, is re­flect­ing the sen­ti­ment of the en­tire bank­ing sys­tem.

The loans may not turn into bad debt im­me­di­ately, but a big chunk of it even­tu­ally could, fear bankers and an­a­lysts. The tele­com com­pa­nies owe banks at least ~1.8 tril­lion, in which fund-based ex­po­sure it­self is about ~1.24 tril­lion, an anal­y­sis of the top-10 ex­po­sure by banks re­veal.

Ac­cord­ing to the Supreme Court or­der, the tele­com com­pa­nies will have to pay ~1.47 tril­lion of their ad­justed gross rev­enue (AGR) dues to the

Depart­ment of Telecom­mu­ni­ca­tion by March 17.

This in­cludes dues from even com­pa­nies that have be­come de­funct or turned bank­rupt. How­ever, the NPAS in them are not clear as banks don’t dis­close the num­ber.

Voda­fone Idea will have to pay ~54,000 crore, Air­tel needs to pay ~35,500 crore, and Tata Te­le­ser­vices owes ~14,000 crore in dues even as it sold its mo­bile busi­ness to Air­tel.

Voda­fone Idea Chair­man Ku­mar Man­galam Birla has al­ready stated that if there is no re­lief from the gov­ern­ment on the AGR dues, the com­pany may have to close down. “If we are not get­ting any­thing, then I think it is end of story for Voda­fone Idea,” Birla had said in early De­cem­ber. “It does not make sense to put good money af­ter bad… We will shut shop.”

If Voda­fone had to close down, it would be a big blow for the bank­ing in­dus­try.

Bankers say the only money they can ex­pect to re­cover in that case would be by sell­ing old 3G and 5G spec­trums to ex­ist­ing play­ers in in­sol­vency pro­ceed­ings. With the new 5G spec­trum auc­tions due soon, the hair­cut will be very steep.

Ac­cord­ing to a se­nior IDBI Bank ex­ec­u­tive, the bank has un­funded ex­po­sure in the form of guar­an­tees (mostly in Voda­fone). This will be­come funded ex­po­sure only when the ben­e­fi­ciary in­vokes the guar­an­tee.

Even af­ter it be­comes funded ex­po­sure, the bor­rower gets three months to re­pay. Fail­ing to re­pay makes it an NPA and will at­tract 15 per cent pro­vi­sion­ing for the first year. Thus, the bank does not see any im­me­di­ate im­pact on its books.

The im­me­di­ate hit on banks through pro­vi­sion­ing will be dam­ag­ing enough.

“Af­ter recog­nis­ing DHFL as a non-per­form­ing ac­count in the pre­vi­ous quar­ter, the bank­ing sec­tor may have to deal with heavy losses from another large cor­po­rate ac­count,” said Nitin Ag­gar­wal, bank­ing an­a­lyst at Moti­lal Oswal Se­cu­ri­ties.

“The SC ob­ser­va­tions on Fri­day have raised con­cerns on the as­set qual­ity of bank­ing sys­tem as many of them have size­able fund, plus non-fund ex­po­sure to the tele­com sec­tor, mainly Voda­fone Idea, which is un­der se­vere stress. Amongst banks, SBI, IDBI Bank, YES Bank, In­dusind Bank, and IDFC First Bank have rel­a­tively higher ex­po­sure. Of these, only IDFC First Bank has made 50 per cent pro­vi­sions dur­ing the last quar­ter,” Ag­gar­wal said.

Early this week, Moody’s re­vised the out­look on In­dusind Bank to ‘neg­a­tive’ from ‘sta­ble’ to ac­count for the risk of fur­ther as­set qual­ity de­te­ri­o­ra­tion ow­ing to the on­go­ing stress in the tele­com sec­tor. An­a­lysts and bankers would await more clar­ity on the whole is­sue on March 16, the next date of hear­ing.

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