With muted 3G uptake and new 2G players hit by deepening losses, Indian banks seem to be heading for a rough ride due to their perceived huge exposure in the sector. State Bank of India, for instance, has a total exposure of Rs 23,000 crore in the telecom segment, of which, Rs 15,000 crore is direct funding and the balance is non-fund based (guarantees, and so on).
Guarantees may be given when operators go in for overseas borrowing to buy network equipment.
This is a cause of worry because the telecom sector is going through a rough phase with all the operators reporting declining profits and slowing growth in subscriber base.
The operators paid nearly Rs 1-lakh crore to the Government last year to acquire 3G and broadband spectrum.
Revenues under pressure
State-owned banks, including SBI, funded a large part of this payout.
But, 3G operators have not been able to push their services aggressively into the market. According to one industry estimate, operators are earning just about Rs 10-20 crore a month from 3G services.
The depreciating rupee is another cause of worry as banks have borrowed from the foreign market to lend to Indian telecom companies.
SBI officials, however, are putting up a brave front. “There is no reason to be worried that loans may not be serviced or accounts are turning bad. All our existing loan accounts to telecom are standard assets as of today,” said an official.
An indication of the nervousness is that state-owned banks, including SBI, have put a squeeze on funding new telecom projects.
“State-owned banks have almost stopped giving funds for new telecom projects because some feel they have more exposure in this sector compared to other segments,” said Mr Rajan Mathews, Director General, Cellular Operators' Association of India.
Credit exposure
According to PwC, the gross credit exposure of the Indian banking industry to the telecom sector stood at Rs 94,319 crore as on June, 2011.
In comparison, the total exposure was at Rs 46, 980 crore as on June 2009. But during the same period, operators' profit margins have declined drastically.
New 2G players' losses have also worsened with operators like Sistema Shyam's doubling to Rs 1,009.7 crore for the third quarter ended September 30.
Banks such as SBI have, therefore, tightened the process for giving loans to telecom companies in a bid to limit the risks.