Defaults by troubled telecom companies in India could add to problems at banks with weak balance sheets, said Fitch Ratings.

Fitch Ratings also said Indian banks’ exposure to telecom companies is not large enough to pose a systemic threat.

Total debt owed by telecoms to banks is INR 913 billion or $14 billion, accounting for just 1.4 percent of all bank loans, according to the Reserve Bank of India.

The banking sector is struggling with significant asset quality issues and is likely to require hefty capital injections from the government over the next couple of years.

The credit profiles of Indian telecoms are under pressure from competition from the entry of Reliance Jio, a telecom operator promoted by richest Indian Mukesh Ambani. Increase in Capex (capital expenditure) for enhancing 4G services is also creating crisis for some telecom operators.

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

Finance Minister Arun Jaitley on Monday expressed concerns about the ailing health of telecom companies. He said it is the responsibility of the telecom ministry and the sector regulator TRAI to take care of the telecom industry and ensure fair competition to ensure benefits to consumer.

Who’s under pressure?

Fitch Ratings said pressure is most severe at Reliance Communications, which faced downgrade last week to CCC to reflect the real possibility of default.

Reliance Communications, a telecom company promoted by Anil Ambani, reported 30 percent drop in EBITDA in the financial year to end-March 2017. RCOM’s earnings are unlikely to cover interest costs and Capex over the coming year.

Liquidity was also poor, with cash and equivalents of INR14 billion or $220 million well short of covering short-term debt of INR 109 billion. RCOM’s debt is around $7 billion, a significant portion of which is owed to state-owned banks.

Aircel and Tata Teleservices (Tata Docomo) could face issues connecting to debt servicing.

Aircel is in the process of merging its wireless operation with RCOM, but the combined entity will have limited pricing power and high leverage that will constrain its ability to strengthen its network position.

Videocon India’s financial lenders have implemented a corrective action plan that could involve loan restructuring or forced asset sales.

Bharti Airtel is likely to meet repayments comfortably on the over $1 billion that it owes to banks.

Vodafone and Idea Cellular are in the process of merging their operations, which will give the new entity a market-leading share. Idea’s balance sheet is stretched, but the combined company is unlikely to experience serious problems in servicing its debt.

The risk of Tata Teleservices missing payments is mitigated by the potential for its parent company, the Tata Group, to inject equity into its subsidiary.

State-owned telecoms, BSNL and MTNL, are likely to be in weaker positions, but almost all their debt is owed to the government.

Spectrum assets-backed loans should provide a better chance of recovery to banks. However, the sale of spectrum assets may take longer than banks expect and not fetch full value, given that the top-three telecoms now have sufficient spectrum to run their mobile operations for the medium term.