India telecom sector faces bad loan risks, RBI tells banks

telecom tower india
The Reserve Bank of India (RBI) on Tuesday cautioned about loans given to companies in sectors in difficulty such as telecom and may witness rising bad loans.

An ASSOCHAM-KPMG paper in September 2016 pointed towards the Indian telecom operators grappling with a debt burden of Rs 3.8 lakh crore.

Indian telecom sector is expected to contribute 8.2 per cent or INR 14 lakh crore to the GDP by 2020 and one of the highest contributors to the GDP over the last decade.

In the wake of Reliance Jio continuing its promotional offers, several telecom operators will post higher losses in coming quarters.

RBI has asked banks to 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 telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one,” an RBI notification said.

“Board of directors of the banks may review the telecom sector latest by June 30, 2017, 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,” it said.

“Besides, banks should also subject the exposure to the sector to closer monitoring,” it added.

According to RBI, its standard rules for monitoring of loans include periodic reviews of its assets which combine quantitative and qualitative aspects of the loans. These include debt-equity ratio, interest coverage ratio, profit margins of each of the company, IANS reports.