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RBI raises provisioning on telecom loans

Total debt at about Rs 4 lakh crore, analysts estimate stress of Rs 80,000 crore

Anup Roy & Megha Manchanda  |  Mumbai 

Reserve Bank of India
Reserve Bank of India

In an unusual directive, the of India (RBI) on Tuesday asked to set aside higher provisioning for the telecom sector, starting from the current quarter. 

The telecom industry had outstanding debts of nearly Rs 4 lakh crore, incurred mainly on account of payments for spectrum, spectrum usage charges and other levies. The beleaguered industry had written to the department of telecom, apprising it about the financial situation. As of September 2016, the total debt of listed telecom companies was at Rs 2,14,477.17 crore. 

Udit Kariwala, senior analyst, financial institutions, India Ratings, said the stressed assets in the telecom sector were estimated at about Rs 80,000 crore. Most of the were still shown as standard assets though they showed all signs of stressed assets, he added. For restructured advances, which are treated as standard assets, have to make a provision of five per cent.

The also asked to increase provisioning even for standard to At present, the mandates to provide 0.4 per cent as provision for a standard loan as ‘regulatory minimum’, indicating the provisions could be higher. 

The RBI’s singling out of the telecom sector is particularly interesting. In its various publications, most notably in the Financial Stability Report (FSR), the has said five sectors — infrastructure, steel, textiles, power and telecom — have contributed to more than 60 per cent of bank stress. Steel, power, transport and other infrastructure sectors have created a huge problem of non-performing assets (NPA) to  

The RBI’s cautioning on the telecom sector could be seen in that context. 

The interest coverage ratio of the sector, now, is less than one, the said. A ratio of less than one indicates that companies are not able to service their full interest from the operating profit, a clear indication of high stress. In addition, the companies were also reporting “stressed financial conditions,” the noted.

“We are glad that the has taken note of the financial issues of the industry. The stress level has caused major financial problems to the companies and we feel that the time has now come that the government addressed this issue,” Rajan Mathews, director general, Cellular Operators Association of India, said.

The central bank’s said the bank boards should review the telecom sector loan by June 30, “and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date.”

“Besides, should also subject the exposure to the sector to closer monitoring,” the said.

The central bank has been warning about the telecom sector for quite some time. 

For example, the FSR, published in December 2015, showed that telecom sector was still relatively healthy compared with power and transport, which saw restructured assets and bad debts in double digits.

In the December 2016 report, however, the started getting concerned about the high leverage in the telecom sector.

While reviewing the sector, the should review quantitative and qualitative aspects like debt-equity ratio, interest coverage ratio, profit margins, ratings upgrade to downgrade ratio, sectoral non-performing assets/stressed assets, industry performance and outlook, legal/ regulatory issues faced by the sector, etc, Besides, sector specific parameters should also be taken into consideration, the said.

The higher provisioning for standard would be applicable to all sectors that are in stress, the said. However, the central bank did not specify the extent of increase in provisioning. 

shall put in place a board–approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors,” the RBI’s said. 

The provisioning goes up as the company fails to service the interest on its within 91 days. The did not specify how much of additional provisioning should be made by banks, but said it should be sector-specific and should be reviewed at least on a quarterly basis.

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RBI raises provisioning on telecom loans

Total debt at about Rs 4 lakh crore, analysts estimate stress of Rs 80,000 crore

Total debt at about Rs 4 lakh crore, analysts estimate stress of Rs 80,000 crore
In an unusual directive, the of India (RBI) on Tuesday asked to set aside higher provisioning for the telecom sector, starting from the current quarter. 

The telecom industry had outstanding debts of nearly Rs 4 lakh crore, incurred mainly on account of payments for spectrum, spectrum usage charges and other levies. The beleaguered industry had written to the department of telecom, apprising it about the financial situation. As of September 2016, the total debt of listed telecom companies was at Rs 2,14,477.17 crore. 

Udit Kariwala, senior analyst, financial institutions, India Ratings, said the stressed assets in the telecom sector were estimated at about Rs 80,000 crore. Most of the were still shown as standard assets though they showed all signs of stressed assets, he added. For restructured advances, which are treated as standard assets, have to make a provision of five per cent.

The also asked to increase provisioning even for standard to At present, the mandates to provide 0.4 per cent as provision for a standard loan as ‘regulatory minimum’, indicating the provisions could be higher. 

The RBI’s singling out of the telecom sector is particularly interesting. In its various publications, most notably in the Financial Stability Report (FSR), the has said five sectors — infrastructure, steel, textiles, power and telecom — have contributed to more than 60 per cent of bank stress. Steel, power, transport and other infrastructure sectors have created a huge problem of non-performing assets (NPA) to  

The RBI’s cautioning on the telecom sector could be seen in that context. 

The interest coverage ratio of the sector, now, is less than one, the said. A ratio of less than one indicates that companies are not able to service their full interest from the operating profit, a clear indication of high stress. In addition, the companies were also reporting “stressed financial conditions,” the noted.

“We are glad that the has taken note of the financial issues of the industry. The stress level has caused major financial problems to the companies and we feel that the time has now come that the government addressed this issue,” Rajan Mathews, director general, Cellular Operators Association of India, said.

The central bank’s said the bank boards should review the telecom sector loan by June 30, “and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date.”

“Besides, should also subject the exposure to the sector to closer monitoring,” the said.

The central bank has been warning about the telecom sector for quite some time. 

For example, the FSR, published in December 2015, showed that telecom sector was still relatively healthy compared with power and transport, which saw restructured assets and bad debts in double digits.

In the December 2016 report, however, the started getting concerned about the high leverage in the telecom sector.

While reviewing the sector, the should review quantitative and qualitative aspects like debt-equity ratio, interest coverage ratio, profit margins, ratings upgrade to downgrade ratio, sectoral non-performing assets/stressed assets, industry performance and outlook, legal/ regulatory issues faced by the sector, etc, Besides, sector specific parameters should also be taken into consideration, the said.

The higher provisioning for standard would be applicable to all sectors that are in stress, the said. However, the central bank did not specify the extent of increase in provisioning. 

shall put in place a board–approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors,” the RBI’s said. 

The provisioning goes up as the company fails to service the interest on its within 91 days. The did not specify how much of additional provisioning should be made by banks, but said it should be sector-specific and should be reviewed at least on a quarterly basis.

graph

image
Business Standard
177 22

RBI raises provisioning on telecom loans

Total debt at about Rs 4 lakh crore, analysts estimate stress of Rs 80,000 crore

In an unusual directive, the of India (RBI) on Tuesday asked to set aside higher provisioning for the telecom sector, starting from the current quarter. 

The telecom industry had outstanding debts of nearly Rs 4 lakh crore, incurred mainly on account of payments for spectrum, spectrum usage charges and other levies. The beleaguered industry had written to the department of telecom, apprising it about the financial situation. As of September 2016, the total debt of listed telecom companies was at Rs 2,14,477.17 crore. 

Udit Kariwala, senior analyst, financial institutions, India Ratings, said the stressed assets in the telecom sector were estimated at about Rs 80,000 crore. Most of the were still shown as standard assets though they showed all signs of stressed assets, he added. For restructured advances, which are treated as standard assets, have to make a provision of five per cent.

The also asked to increase provisioning even for standard to At present, the mandates to provide 0.4 per cent as provision for a standard loan as ‘regulatory minimum’, indicating the provisions could be higher. 

The RBI’s singling out of the telecom sector is particularly interesting. In its various publications, most notably in the Financial Stability Report (FSR), the has said five sectors — infrastructure, steel, textiles, power and telecom — have contributed to more than 60 per cent of bank stress. Steel, power, transport and other infrastructure sectors have created a huge problem of non-performing assets (NPA) to  

The RBI’s cautioning on the telecom sector could be seen in that context. 

The interest coverage ratio of the sector, now, is less than one, the said. A ratio of less than one indicates that companies are not able to service their full interest from the operating profit, a clear indication of high stress. In addition, the companies were also reporting “stressed financial conditions,” the noted.

“We are glad that the has taken note of the financial issues of the industry. The stress level has caused major financial problems to the companies and we feel that the time has now come that the government addressed this issue,” Rajan Mathews, director general, Cellular Operators Association of India, said.

The central bank’s said the bank boards should review the telecom sector loan by June 30, “and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date.”

“Besides, should also subject the exposure to the sector to closer monitoring,” the said.

The central bank has been warning about the telecom sector for quite some time. 

For example, the FSR, published in December 2015, showed that telecom sector was still relatively healthy compared with power and transport, which saw restructured assets and bad debts in double digits.

In the December 2016 report, however, the started getting concerned about the high leverage in the telecom sector.

While reviewing the sector, the should review quantitative and qualitative aspects like debt-equity ratio, interest coverage ratio, profit margins, ratings upgrade to downgrade ratio, sectoral non-performing assets/stressed assets, industry performance and outlook, legal/ regulatory issues faced by the sector, etc, Besides, sector specific parameters should also be taken into consideration, the said.

The higher provisioning for standard would be applicable to all sectors that are in stress, the said. However, the central bank did not specify the extent of increase in provisioning. 

shall put in place a board–approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors,” the RBI’s said. 

The provisioning goes up as the company fails to service the interest on its within 91 days. The did not specify how much of additional provisioning should be made by banks, but said it should be sector-specific and should be reviewed at least on a quarterly basis.

graph

image
Business Standard
177 22