RBI flags risks to lenders, inflation amid telecom sector woes - Hindustan Times
close_game
close_game

RBI flags risks to lenders, inflation amid telecom sector woes

Livemint, Mumbai | ByGopika Gopakumar & Shayan Ghosh
Feb 28, 2020 06:40 AM IST

RBI is worried that further tariff hikes, as demanded by telecom operators, could be inflationary, a concern that it had also raised in December when telcos raised tariffs for the first time in more than a decade.

The Reserve Bank of India (RBI) is concerned about the fallout of the Supreme Court order on telecom dues and is watching the developments in the industry closely, a senior official aware of the matter said.

CCTV cameras are seen installed above the logo of Reserve Bank of India (RBI) inside its headquarters in Mumbai.(REUTERS)
CCTV cameras are seen installed above the logo of Reserve Bank of India (RBI) inside its headquarters in Mumbai.(REUTERS)

The central bank is worried that further tariff hikes, as demanded by telecom operators, could be inflationary, a concern that it had also raised in December when telcos raised tariffs for the first time in more than a decade. It is also concerned about the impact of the court order on banks, which have substantial exposure to telecom companies. A collapse of an operator will add to the bad loan pile of Indian lenders. “The government is working on a potential rescue plan for the sector and is likely to consider RBI’s request,” the person said.

Hindustan Times - your fastest source for breaking news! Read now.

To ease the burden on telcos, RBI requested the government to allow telecom companies to stagger their payment of dues to the government over the next two-three years.

“RBI had written to the government two-three months ago seeking relief for the telecom companies,” the person said.

RBI’s monetary policy committee (MPC) had also cautioned about the impact of tariff hikes on inflation. “Meanwhile, adjustments to telecom charges are imparting cost-push pressures to CPI (consumer price index) inflation excluding food and fuel,” it said. Fears over fresh tariff hikes have resurfaced after the Supreme Court pulled up Bharti Airtel Ltd, Vodafone Idea Ltd as well as government officials for failing to comply with its October verdict, directing telecom operators to pay an estimated 1.4 trillion in spectrum usage and licence fee dues to the government. The order dealt a blow to the telecom industry, which argued that adjusted gross revenue (AGR) should only include revenue from core telecom operations.

Vodafone Idea is the worst hit by the verdict, with the top court directing it to pay an estimated 50,000 crore in dues. It has so far paid 3,500 crore. RBI’s fears over the court verdict also stems from the banking sector’s large exposure to the telecom sector.

According to a 25 February Credit Suisse note, banks have 1-2.5% funded exposure to the telecom sector and 1.5-3% as non-fund exposure. Exposure to Vodafone Idea for some of the larger banks is at 2-12% of their net worth.

SBI has the largest exposure to Vodafone Idea at 11,200 crore.

Unlock a world of Benefits with HT! From insightful newsletters to real-time news alerts and a personalized news feed – it's all here, just a click away!- Login Now!
Stay informed on Business News along with Gold Rates Today, India News and other related updates on Hindustan Times Website and APPs
SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Wednesday, March 27, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On