The stress in India’s telecom sector is worrying banks as they have huge exposure to these companies and fear the possibility of loan defaults.
Four leading banks — State Bank of India, Punjab National Bank, Axis Bank and HDFC Bank — met with an inter-ministerial group (IMG) on Thursday to express their concerns, reports PTI. The combined debt burden of these banks on telecom sector stood at Rs 4.6 trillion (US$ 70 billion).
The IMG, comprising officials from ministries of communications and finance, is meeting operators and lenders to discuss financial difficulties being faced by the industry, and measures that can be taken to ease the situation.
The country’s largest state-owned bank State Bank of India reportedly has an exposure of Rs 800 billion (US$ 12.45 billion) to the telecom sector, PTI added.
Last month, SBI chairman Arundhati Bhattacharya in a letter to the telecom secretary expressed concern that the stress in the telecom sector had reached ‘unsustainable levels’. The letter blamed the entry of new players and launch of free services, “which led to erosion of topline and EBITDA (earnings before interest, taxes, depreciation and amortization) of the telecom service providers.”
The price war was triggered in September last year after the entry Reliance Jio Infocomm Ltd, owned by India’s richest man Mukesh Ambani. It has caused widespread disruption in the telecom sector with foreign players like Telenor ASA of Norway and Vodafone Plc of Britain looking to exit the market.
Recently Reliance Communications, a company owned by Mukesh Ambani’s younger brother Anil, got a seven-month respite on all its debt from bankers to service loans amounting to Rs 450 billion (US$ 7 billion). In order to reduce its debt burden, the company plans to merge its wireless business with Aircel and sell stake in its towers.