Following the Reserve Bank of India (RBI) conveying its concerns over the “stressed financial conditions” in the telecom sector last month, and former telecom secretary raising the issue about the health of the sector on account of low tariffs, a committee of secretaries has approved constitution of an inter-ministerial group to examine systemic issues affecting the viability and repayment capacity in telecom sector and recommend resolution for stressed assets.
In April, the RBI had ordered the boards of banks to review the telecom sector loans, which were to the tune of Rs 3,80,000 crore, and consider making provisions for standard assets in this sector at higher rates. To discuss the issue, the committee of secretaries had conducted a meeting in late March. The inter-ministerial group, which will submit its recommendations within three months, will comprise five senior officials from the Department of Telecommunications (DoT), and three joint secretaries from the departments of economic affairs, financial services, and revenue.
Previous DoT secretary JS Deepak had also raised red flags about the financial health of the telecom sector in light of promotional offers being given by a new entrant and the resultant capability of the companies to meet their contractual commitments, including payment of installments for spectrum purchased and repayment of loans. The apex decision making body of the DoT — the Telecom Commission — of which Deepak was also the head at that time, wrote to sector watchdog Telecom Regulatory Authority of India, warning of a potential loan default by telecom operators, on account of the financial burden they were facing due to free promotional offers.
This has also been reflected in the March-quarter earnings of top three telecom players in the country – Bharti Airtel, Vodafone India, and Idea Cellular. Missing the estimates, Bharti Airtel’s consolidated net profit for the three-month period ended March 31 fell 69 per cent to Rs 471 crore, compared with Rs 1,529 crore in the year-ago period. Vodafone India’s 2016-17 operating profit too declined 10.2 per cent. Idea was the worst affected and reported a consolidated net loss of Rs 325.6 crore.