Bankers warn government about possible defaults in telecom industry

India's top bankers have warned the government about defaults from the debt-bruised telecom sector.


The telecom sector is under a debt of Rs 8 lakh crore, which is more than double of the direct exposure that banks have made into telecom sector, as disclosed by data from the Reserve Bank of India (RBI).

Banks made a presentation to the cabinet secretary recently, days before the RBI imposed stricter provisioning on regular telecom loans. In the presentations, bankers said using spectrum as a collateral and extension of spectrum repayment schedule is what might save this sector from failures.

Banks have directly lent Rs 2.63 lakh crore to this sector, other than which there is also deferred spectrum payments worth Rs 3.09 crore and third party loans dependent on operators' contracts of around Rs 1.8 lakh crore.

The expected annual capital expenditure by telecom operators, which is pegged at Rs 35,000 crore, is only going to be further compound the loan issue.

As per banks’ estimate, overall annual revenue for the telecom sector will drop by 25% to Rs 1,31,000 crore by March 2019, while a 20% operating margin is also expected. To counter this, telecom companies would need to generate enough funds to service the Rs 5.72 lakh crore debts, which they seem unable to do.

Banks even recommended some measures to help telecom companies manage their debts, asking the government to consider tax relief for the sector.

Banks have suggested that companies could use spectrum as security, which would allow banks to offer more debt. This would smoothen payouts towards the government-deferred spectrum scheme.

Banks have also urged the government to lower spectrum usage charges, licence fees, and taxes, so that the telecom sector be relieved.

(Image source CFO)