DOT cuts bank guarantee requirement for telcos by 80%

The Department of Telecommunications (DOT) on Tuesday announced slashing the performance and financial bank guarantee requirements of telecom operators by 80 per cent.

According to a licence amendment note, telecom operators will be required to provide a performance bank guarantee of up to ~44 crore for each service for the telecom licence compared to ~220 crore mandated under the old rule.

Similarly, telecom operators will need to provide a financial bank guarantee of a maximum ~8.8 crore per circle now, against the previous requirement of ~44 crore.

The move will benefit companies as their cash requirement would come down. It will unblock the cash of telecom operators that they keep with banks to furnish bank guarantees.

The rule will not be applicable in cases where bank guarantees have been furnished due to any court order or are subject to any litigation, the licence amendment note said.

The rules will also not apply to telecom operators, who are currently going through a liquidation process.

Even under the relief package approved by the Union Cabinet, the government plans to return bank guarantees worth ~14,000 crore to Vodafone Idea (Vi) and ~8,000 crore to Bharti Airtel if they opt for a four-year moratorium on payment of spectrum dues.

Under the relief package, the bank guarantees have been rationalised, which will lead to a reduction in bank guarantees requirements against the licensee fees and other levies. The requirement of multiple bank guarantees has been done away with and the companies now can have one bank guarantee for different licensed service areas.

The interest rates have been rationalised and penalties removed. For future spectrum auctions, no bank guarantees will be required to secure instalment payments. The relief package is expected to uplift the current players besides luring international investment. To encourage investment, 100 per cent Foreign Direct Investment under automatic route has been permitted in the telecom sector, with all safeguards.

TELECOM FIRMS WILL NOW PROVIDE A PERFORMANCE BANK GUARANTEE OF UP TO ~44 CRORE FOR EACH SERVICE FOR THE LICENCE COMPARED TO ~220 CRORE MANDATED