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Debt-heavy telecom sector doesn't pose systemic threat to banks: Fitch

However, it adds defaults could affect lenders with weak financials

Press Trust of India  |  Mumbai 

Reliance Communications Chairman Anil Ambani
Reliance Communications Chairman Anil Ambani

In the wake of a recent at Communications (RCom), global rating agency Ratings on Tuesday said though the country's banks do not have large exposure to the telecom sector, defaults could affect lenders with weak financials.

"Indian banks' exposure to troubled telecom companies is not large enough to pose a systemic threat, but defaults could add to problems at banks with weak balance sheets," the rating agency said in a note here today.

According to the (RBI), the total owed by to banks is only Rs 91,300 crore ($14 billion), accounting for just 1.4 per cent of all

Anil Ambani-led is struggling to repay Rs 45,000 crore of to its lenders.

Due to weak operating performance and liquidity condition, the company and its various instruments were downgraded by multiple rating agencies including Ratings.

Last week, the lenders to agreed to restructure its debt under strategic debt restructuring of the RBI. The lenders have given the company a seven-month breather to repay a part of the debt.

further said the credit profiles of the country's are under pressure from fierce competition stemming from the entry into the market of Jio last year and rising required for the roll-out of

"Some companies could find it difficult to service their debt and we have the sector on a negative outlook," it said.

The banks already have significant asset quality issues that could be made worse by stress in the

It, however, said exposure to other troubled sectors is much larger. Lending to iron and steel companies, for example, accounts for 4.7 per cent of total lending. The power sector accounts for 8.7 per cent and the road sector for 2.7 per cent.

The agency said loans to are also generally backed by spectrum assets, which should provide a better chance of recovery than, for example, a steel factory operating below capacity or a power plant that lacks a power purchase agreement.

"That said, the sale of might take longer than banks expect and not fetch full value, given that the top three telcos now have sufficient spectrum to run their operations for the medium term," the report said.

First Published: Tue, June 06 2017. 16:10 IST