MUMBAI: India’s top bankers have warned the government that failure in the debt-bruised telecom sector could result in defaults in the industry whose total borrowings amount to a Rs 8 lakh crore. This happens to be more than double the direct exposure banks have made to this sector as disclosed in the Reserve Bank of India’s data.
In a recent presentation to the cabinet secretary that came days before the RBI imposed higher provisioning by banks even on regular telecom loans, banks said using spectrum as a collateral and extension of spectrum repayment schedule may be needed to salvage this sector.
In addition to direct lending by banks to the sector which amounted to Rs 2.63 lakh crore, there is also deferred spectrum payments to the tune of Rs 3.09 crore and third party loans dependent on operators’ contracts of around Rs 1.8 lakh crore, the banks said in their presentation. This would only be further compounded by the expected annual capital expenditure by telecom operators estimated to be Rs 35,000 crore.
Banks estimate that overall annual revenue for the sector will drop by 25% to Rs 1,31,000 crore by March 2019. Banks also argued that with a 20% operating margin, telecom companies would be unable to generate enough funds to service the Rs 5.72 lakh crore debt riddling the sector.
“Certain companies have already started defaulting on payments to banks,” the presentation showed, a copy of which was seen by ET. A query sent by ET to the government remained unanswered. Banks did not comment either.
Banks have recommended some measures that will help telecom companies tackle their debt and have sought tax relief for the sector.
If companies could use spectrum as security, banks could offer more debt and therefore smoothen payouts towards the government-deferred spectrum scheme. At the moment, while companies can offer their licence as a lever to borrow, spectrum, for which bulk of the payments are made, cannot be collateralised under the department of telecommunication rules.
Banks have also urged the government to ease the merger and acquisition norms and hasten permissions to prevent lingering and therefore devaluation of fringe players. A part of this also includes speedy resolution of disputes and permissions.
To help operators who lack ability to raise more funds, banks said a permission to trade their spectrum must be given even if the spectrum was allocated prior to auctions since 2010. For now, companies must pay the price difference between auction price and the allocated price for airwaves, before it can share or trade. Reliance Communications had paid around Rs 5,500 crore before signing a sharing an agreement with Jio.
Banks have urged the government to lower spectrum usage charges, licence fees, and taxes. They have tallied it with telecom taxes prevalent in other Asian countries to demonstrate how Indian companies were paying more.
This can be resolved by restructuring the way adjusted gross revenue was calculated for licence fees, banks proposed. Subscriber statistics show that lucrative customers were concentrating on the top three operators — Bharti Airtel, Vodafone India, Idea Cellular — and bargain buyers were focusing on Reliance Jio.
To add to the bankers’ woes, the Reserve Bank of India recently issued a notification to provide for default on some telecom loans even if the accounts were regular at the moment. The government has had its sights set on the over-indebtedness of corporates and has been pushing for measures to write off irrecoverable debt.
Inadequate operating profit
Since September, Reliance Jio launched free 4G service for customers to ramp up users. In April, the service became a paid one but at a fraction of the industry pricing. Bankers and telecom officials were moved to action when a recent spectrum payment by a tail-ending operator was missed, and the question of invoking a bank guarantee was raised.
Subsequently, the company paid its dues to the government with interest for the entire month, confirmed an official at the department of telecom. Yet, the question on the validity of some of the bank guarantees was raised as the business case based on which these guarantees were issued has changed.