Banks urged govt to save Vodafone Idea from going bust

New Delhi: The government’s application to the Supreme Court over adjusted gross revenue (AGR) dues on Monday has cited calls it received from banks to save Vodafone Idea from bankruptcy, as they feared their capital position would otherwise come under immense strain.

“As on 31.12.2019, SBI had NPAs of around ₹12,165 crore in the telecom space and many other banks are saddled with telecom NPAs. Any further provisions for bad debts arising out of this sector will put a huge strain on the capital position of banks having substantial exposure to major telecom companies,” the Indian Banks’ Association (IBA) wrote in a letter to the secretary of the Department of Telecommunications.

The letter from the IBA and another from State Bank of India chairman Rajnish Kumar were part of the government’s application in court.

The IBA’s letter was sent a day after the SC, on February 14, lashed out at telecom companies for not paying up their AGR dues on time while hearing their plea to be allowed to negotiate with the telecom department on longer timelines for payment. The court had at the time ordered the telcos to pay their dues by the next date of hearing, or March 17.

State Bank of India chairman Rajnish Kumar, in his letter to the Department of Financial Services, said the bank had an exposure of ₹17,650 crore to Vodafone Idea. The telco owes another ₹6,965 crore to other public sector banks and ₹21,788 crore to private sector banks.

While urging the government to step in and save the telco to avoid the ripple effects, especially on the banking sector, the IBA made a string of suggestions to put the battered telecom sector back on track.

These included removal, or at least reduction, of the spectrum usage charge as telcos are already buying airwaves through auctions, and ensuring minimum tariffs that are above the cost of the most competitive operator. It also suggested reducing the contribution of telecom companies to the universal services obligation fund, until the current corpus of ₹50,000 crore is fully utilised.

The association further proposed requesting the Reserve Bank of India to treat spectrum as a tangible asset and classify it as a “property” under the Insolvency and Bankruptcy Code. Classifying spectrum as a tangible asset, the IBA said, would go a long way in providing relief to banks in terms of provisioning, considering the stress on the profitability of banks.

Urging the government to address the concerns of the banking sector, the SBI chairman, in his letter, said if Vodafone Idea field for bankruptcy, it would strain the banking sector.