Banks willing to offer lower rates to telcos but want spectrum clarity

Lenders would take up issue of spectrum as collateral with DoT

The turning of the interest rate cycle could become a boon for telecom companies, which are planning to borrow from banks to fund their spectrum buy. Lenders are willing to lend or even refinance the existing loans at least 100 basis points (bps) lower than the rate, which was charged earlier.

However, banks want clarity on whether spectrum could be treated as collateral and are in talks with the Department of Telecommunications (DoT) on the issue.

DoT had earlier taken the view that spectrum is a natural resource and belongs to the government. Hence, companies cannot use it as collateral for getting loans. The DoT is not willing to allow airwaves as a security because spectrum has to be surrendered to the bank in case a telecom operator defaults.

"We have taken up the matter with DoT. We want spectrum as security for loans," said a top official from a large public sector bank.

Banks are looking at the opportunity to strengthen their loan book by meeting the huge requirements of telecom operators at a time when loan growth remained sluggish amid a slowing economy.

According to Reserve Bank of India (RBI) data, year-on-year credit growth for the current financial year till March 6 is 10.2 per cent - the lowest since 1996-97. High interest rates (RBI has started reducing the policy rate only in January this year though banks are yet to pass it on to the customers) have dented loan demand in addition to pressure on asset quality, which has made banks cautious in lending to corporate borrowers.

The government will receive Rs 1.1 lakh crore from the telecom operators for the airwave auction. The three large players - Bharti Airtel, Vodafone and Idea Cellular - will pay about Rs 25,000 crore each for securing spectrum.

Most companies in the telecom sector are reeling under heavy debt as a result of which they want to use the spectrum as collateral to raise resources from banks.

The possibility of having a tripartite agreement between banks, operators and DoT has also been mooted, but the key issue remains who will have the control of airwaves in case of a default. Banks have also raised the issue with the finance ministry.