As an intense price war continues to take a toll on the finances of telecom players, the Reserve Bank of India issued a warning to banks asking them to be vigilant about loans given to companies in sectors that are going through tough times and that they may see a rise in bad debts.
An RBI notification read, “As the telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one, board of directors of banks may review the telecom sector by June 30, and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date. Besides, banks should also subject the exposure to the sector to closer monitoring.”
The statement comes at a time when the finance ministry and the central bank are working on a package to improve the health of state-run banks grappling with record sticky assets, especially in sectors such as power and steel. The main bank and the government, during their discussions, had identified telecom as one of the sectors that could see a build-up of pressure in the coming months as existing players such as Bharti Airtel, Vodafone, and Idea battle it out with Reliance Jio with offers free service to win over subscribers.
A recent report by ratings agency ICRA said that the debt of telcos could hit a record £45 billion. Industry estimates suggest that the annual interest outgo would be around £4.5 billion with another £3.3 billion going as spectrum fee every year.
