Banks’ exposure to the troubled telecommunications sector does not pose a ‘systemic risk,’ Fitch Ratings said on Tuesday.
This is because banks’ exposure to the sector was only ₹91,300 crore which is 1.4% of the total bank loans, Fitch said citing RBI data. A stressed sector like power accounts for 8.7% of loans while the iron and steel sector accounts for 4.7%.
At a time when the Reserve Bank of India has asked commercial banks to increase standard asset provisioning for their exposure to the telecom sector anticipating troubled times ahead, the rating agency said: “Indian banks’ exposure to troubled telecom companies is not large enough to pose a systemic risk, but defaults could add to problems at banks with weak balance sheets.”
Anil Ambani’s Reliance Communications (RCom), was downgraded by Fitch downgraded last week to ‘CCC’ to reflect the real possibility of some kind of default.
However, RCom managed to work out a debt restructuring deal with banks which gave the company seven months’ time to pay a large part of its debt.
Fitch said not all telcos faced financial difficulties. For example, market leader, Bharti Airtel, was likely to meet repayments comfortably on the more than $1 billion that it owes to banks.
Vodafone, Idea merger
“Vodafone and Idea Cellular are in the process of merging their operations, which will give the new entity a market-leading share. Idea’s balance sheet is stretched, but the combined company is unlikely to experience serious problems in servicing its debt,” the report said.
The rating agency said loans to telcos were also generally backed by spectrum assets, which should provide a better chance of recovery.
However, the credit profiles of Indian telcos were under pressure from fierce competition arising out of the entry into the market of Reliance Jio last year and rising capex required for the rollout of 4G services.
