The Supreme Courts decision to cancel 122 telecom licences will hit the profitability of banks that had extended credit to these companies by up to 10 per cent,global ratings agency Fitch has said.
Assuming a conservative level of write-offs on these loans,we believe that banks credit quality will not be materially weakened,but that annual profits could fall by up to 10 per cent, it said in a report. According to Fitch,Indian banks exposure to the telecom companies that are losing 2G licences is around 0.6 per cent of their total loans.
However,around half of the exposure is in the form of financial guarantees toward future payments of licence fees. State Bank of India has confirmed that once the licences are cancelled,those guarantees should no longer be in force, it said. In total… the volume of loans that are affected by the licence cancellations may be less than 0.2 per cent of the sectors total loan book, Fitch added.