With long-term liabilities of Rs 104,402 crore and short term borrowings of Rs 4,120 crore as of March 2019, Vodafone Idea Limited may throw up a new challenge for banks and financial institutions saddled with recovery of huge non-performing assets (NPAs).
Sources in the banking and mutual fund (MF) industry say that if the telco fails to recover from the lows it has hit, it may put additional burden on banks and other financial institutions and it is time forthe government to look at the issue as the issue of India’s telecom industry.
On Thursday, while Bharti Airtel announced a loss of over Rs 23,045 crore for the quarter ended September 2019, Vodafone Idea announced a record loss of Rs 50,922 crore for the quarter.
Bankers are concerned over the current development and say that any relief for the telecom sector will not only help the sector players but even the banks are awaiting relief for the sector due to their huge exposure.
Even debt MFs, having an aggregate exposure of around Rs 3,500 crore to Vodafone Idea, are a worried lot. Top officials with two leading MFs said that the Centre will have to intervene.
According to bankers, the situation is serious in the telecom sector with major ramifications for the banking sector. “If telecom companies go bankrupt and end up in the NCLT, the banking sector will be hit hard. Banks have a huge exposure in the sector. We’re hoping for the best,” said the top official of a state-owned bank.
“The sector will need relief from the government. If the sector doesn’t get support, we don’t know what’s going to be the fate,” he said.
The telecom crisis has come at a time when banks are grappling with the delinquencies in the financial sector, in the wake of the collapse of IL&FS and payment issues in DHFL.
Bankers said the situation in the telecom sector is worrisome, complicated by the recent Supreme Court ruling on AGR. “If there’s liquidation, we don’t hope to recover much from the telecom companies,” they said.
The head of a leading MF too said that “the telecom industry woes have reached a situation where the government needs to step in and somehow try to manage the situation. Otherwise, it may lead to more pain for banks and economy.”
He added that telecom companies have got spectrum and they have customers, but the problem they face is on the front of pricing. “If they can, somehow, send an impression that they can command a higher price for their service, that would go a long way in helping their cause,” said the CEO of an MF.
Analysts said it would be tough for telcos to raise fresh resources in view of the huge losses. While promoters are unlikely to inject more funds, banks will not extend fresh loans in the wake of the crisis situation, they said.