Public sector banks with exposure of over Rs 1.15 lakh crore to telcos have told the government that they won't be able to recover any money in case of likely default and eventual liquidation under the bankruptcy code.
Post the Supreme Court judgment that agreed to the Department of Telecommunications (DoT) demand for adjusted gross revenues (AGR) to include all revenue items, telcos have no option but to cough up an additional Rs 93,000 crore over the next three months.
This will put a severe burden on telcos, especially Bharti Airtel and Vodafone Idea that are already reeling under losses because of lower tariffs and intense competition from Reliance Jio.
"It is not a question of one company going down under. There is going to be a spill over to the banking industry. The outstanding loan amount and bank guarantee to DoT on behalf of telcos is humongous," says a banker on condition of anonymity.
The banking sector, which is already under stress because of deteriorating asset quality in the last five years, will see further losses. In addition, the mutual fund industry too would get impacted.
In the last couple of weeks, government has engaged with all stakeholders including banks, companies to assess the situation at the ground on payment of AGR liability by telcos. "The ball is now in the government's court to allow default or find a way out," say the banker.
"The government should try to keep probability of default to the minimum. If default happens, we won't recover anything," warns the banker. The banker cites the example of Aircel and RCom where they are struggling to recover money. In terms of collateral, banks have only spectrum where there are issues with DoT. There is no corporate and personal guarantee from promoters.
Going forward, the danger is on bank guarantee given by banks to DoT on behalf of telcos. "The moment our bank guarantee gets invoked, it becomes a funded exposure for us," say the banker.
Currently, all loans to big telcos are standard assets in the books of banks. A committee of secretaries is studying demands of telcos for a relief from AGR. The solution banks are hoping for is relief on spectrum payments dues for 2-3 years (which runs over Rs 40,000 crore) and agreement on payment of AGR. "It saves both sides. Otherwise, it's the end of the road. There will be defaults," warns the banker.
This AGR issue between telcos and DoT was dragging for over a decade. Telcos claim AGR includes only core telecom revenues for payment of revenue to DoT whereas DoT took the view that it includes rental, sale of assets and other revenues to calculate AGR.
The current financial position of telcos is challenging. In 2018-19, Bharti Airtel reported revenues of Rs 49,608 crore and net loss of Rs 1,829 crore. In Q2 of 2019/20, losses have widened to Rs 24,513 crore because of AGR provisioning.
Similarly, Vodafone Idea recorded revenues of Rs 36,858 crore and net loss of Rs 14,056 crore in 2019/20. In Q2, losses increased to Rs 49,727 crore on account of AGR provisioning.