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With AGR ruling, banks fear surge in bad loans

SC’s ruling puts at risk the nearly Rs 30,000 cr loans to Voda-Idea, whose survival is now at serious risk.

MUMBAI: Bankers fear a possible collapse of Vodafone Idea will increase bad loans and spark a rerun of the crisis that gripped the banking sector a few years ago.

Bank stocks slumped on Friday after the Supreme Court refused to give relief to telecom companies on adjusted gross revenues (AGR) dues, putting at risk the nearly .Rs 30,000 crore loans to Vodafone Idea, which has repeatedly been saying that its survival will be under threat if the government does not give any relief on payment of past dues.

Vodafone Idea needs to pay.Rs 53,000 crore to the telecom department (DoT) on AGR dues and there are fears that the company may not be able to pay the full amount. On Friday, Vodafone Idea shares plunged 23% to Rs 3.44.

Bankers say the Vodafone Idea account is a standard one as of now and the telco is paying its dues, but lenders, including State Bank of India, have a large exposure through loans and guarantees. These guarantees could come into play if the government invokes them.

Brokerage house Macquarie estimates Vodafone Idea debt at Rs 1.26 lakh crore, of which Rs 90,700 crore is in the form of deferred payment liabilities and guarantees towards spectrum charges payable over 16 years.

Banks which are struggling with non-performing assets (NPAs) of Reliance Communications and Aircel — two other telcos which are at different stages of resolution at bankruptcy courts — may now have to think of alternatives if Vodafone Idea is unable to pay.

“I think now they (telcos) have to talk to the government and if it is an order from the honourable Supreme Court, then they will have to comply. We have to talk to them to understand what their plans are and they would have plans, because this is something they might have expected also. So after this order, we will ask them what are their plans to comply with the order, and whatever is the situation we are capable of handling it,” SBI chairman Rajnish Kumar told reporters on the sidelines of an event in Bengaluru.

SBI’s funded exposure to telecom companies is at Rs 29,000 crore, but its largest exposure is to Vodafone Idea with Rs 11,200 crore. Private sector banks led by IndusInd Bank (Rs 5,000 crore) and ICICI Bank (Rs 1,700 crore) are the other major lenders to the beleaguered firm. Among public sector banks, Punjab National Bank has — at Rs 1,000 crore — the second highest exposure to the telco.

SBI has only provided for Rs 9,000 crore of NPAs from the telecom sector and not provided for loans which are being repaid on time such as the Vodafone Idea account, Kumar said.

IDFC First Bank made a 50% provision for its RRs 1,622 crore exposure to this account. “The bank has a legacy exposure of Rs 3,244 crore to this identified telecom company, of which Rs 2,000 crore is in the form of non-convertible debentures and Rs 1,244 crore is in the form of non-funded exposure (bank guarantees) for spectrum,” the bank said in its third quarter financial statement on February 4.

“There has been no payment default so far from this telecom company. However, considering the financial stress in the telecom companies related to payments due to the government, the bank has taken provisioning of 50% of total exposure towards this identified telecom company which is in financial stress,” it added.

ICICI Bank has also added Vodafone Idea to the below-investment grade, or BB, book but without any provisions. Telecom makes about 1.8% of ICICI Bank’s loans.

“This is now an issue. It could become a bigger problem going forward especially if the company goes belly up and is dragged to the NCLT. The bank guarantees if invoked will lead to a huge provision impact for banks,” a senior public sector bank executive said. Bankers are hoping that the Supreme Court allows companies to pay just the principal amount immediately.

“The principal amount will be between Rs 7,000 crore and Rs 10,000 crore. It is the compounded interest of the 14 years which is the problem. Hopefully telecom companies will get more time to pay the whole amount if they pay the principal, that is the only hope,” said a senior private sector bank executive.

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