Vodafone Idea bankers brace for higher provisions on loans

Bankers to Vodafone Idea are bracing for higher provisions on their loans to the beleaguered telecom firm as the Department of Telecom examines options which include the encashment of bank guarantees.

Any move to encash guarantees to recover dues from Vodafone Idea could lead to possible default and bankruptcy, experts warned.

“The fear now is that this problem which is restricted to the telecom sector will become bigger and engulf the banking sector. It is not going to ease the burden or make life easy for Vodafone Idea but will surely dent banks due to higher provisions. The government will get its money but at the risk of hurting the banking sector,” said a senior executive from a private sector bank with exposure to the company.


As per Vodafone Idea’s own disclosure to the stock exchanges it has outstanding term loans of Rs 16,399 crore to various banks led by Rs 5,000 crore to Yes Bank and Rs 4,750 crore to State Bank of India (SBI). Analysts estimate that the total Indian and foreign bank guarantees to the company could be equal or higher than this amount. However, the actual number could not be ascertained.

“Some banks like IndusInd and IDFC First have revealed their exposure to the company. But it is not clear on what is the total amount of these guarantees. The amount of AGR dues is high and it is fair to assume that any invoking of guarantees by DoT may not be immediately serviceable by the company and will have to be provided for by banks,” said Siddharth Purohit, analyst at SMC Global Securities.

In a disclosure to the stock exchanges on Monday IndusInd Bank said its loans to Vodafone Idea are at Rs 995 crore while the bank also has guarantees of Rs 2,409 crores to the company, both of which are secured. IDFC First Bank has made the most aggressive provisions among banks at 50 per cent provision for its Rs 1,622-crore exposure to this account. “The bank has a legacy exposure of Rs 3,244 crores to this identified telecom company, of which Rs 2,000 crores is in the form of non-convertible debentures and Rs 1,244 crores is in the form of non-funded exposure (bank guarantees) for spectrum,” the bank said earlier this month.

Bankers said that there is now a risk that the company could be declared insolvent if it does not arrange for an equity infusion. “The guarantees may be invoked and banks will pay it but the company has to then pay back the money to banks. I am not sure they have the resources right now. They need to bring in fresh funds otherwise we may have to mark it as a NPA after the 90-day period,” said another senior private sector executive.

The company is already rated below investment grade by rating agencies. On Tuesday, India Ratings & Research downgraded the company by two notches to B- from BBB- citing the company’s inability to pay AGR dues.

“Ind-Ra believes VIL does not have the ability to pay the dues by March 17, 2020, given the lack of clarity on promoter equity infusion, severe erosion in refinancing flexibility and insufficient cash balance (Rs 12,500 crore as of December 2019). The ruling has also elevated the risk of acceleration in the payment of financial liabilities. Also, even if VIL pays the principal amount for AGR dues to comply partially with the SC order, the current cash and equivalent and future cash flows will prove insufficient to meet the financial obligations, in Ind-Ra’s view,” the rating agency said.

SBI is the biggest lender to the telecom sector in absolute terms with total loan exposure of Rs 29,000 crore out of which Rs 4,750 crore is to Vodafone Idea. Last week SBI chairman Rajnish Kumar said the bank’s total non-funded exposure to the sector is at Rs 14,000 crore. Vodafone Idea shares fell 11 per cent to Rs 3 on the BSE on Tuesday.