Banks want increase in call rates before lending telecom firms for 2G auction

Banks are cautiously gearing up to fund telecom operators in the upcoming 2G spectrum auction fearing a high risk of default at current tariff levels. They have also hired external agencies to assess viability of telecom companies who have approached them for funds.

Even Telecom Regulatory Authority of India (Trai) chairman Rahul Khullar has backed the idea of raising tariffs. "At 50 paise a minute, which is roughly speaking what we pay for a telephone call, it's not much," he said on Monday.

Khullar pointed out that in case of all goods whether it be rice or pulses, consumers "are willing to pay 10 to 30 per cent more". "Surely, time has come when consumers must have some degree of tolerance for higher tariffs on voice calls."

Public sector banks are under pressure from the government to fund telecom companies for the auction, which is expected to be held at the end of this year. Banks have not offered fresh loans to telecom firms since early 2011.

The Reserve Bank of India (RBI) has put some preconditions for banks for financing telecom companies in order to protect them from the risk of defaulting. Punjab National Bank (PNB) chairman and managing director K.R. Kamath told Mail Today that none of the telecom companies have approached the bank so far. "Nobody has approached us so far. It (funding for the upcoming 2G auction) will depend on the viability of the project," Kamath said.

A leading bank said that it has no issues with funding even small players who are creditworthy but due to low tariff plans these telecom operators have fewer chances of churning out profit in the near future.

"We expect telecom companies to raise mobile phone tariffs. We don't see any growth of telecom companies if they do not hike tariffs," said a banker on condition of anonymity. Another public sector banker said that banks need to protect their interests to ensure that such heavy investments can be recovered and there is no default.

Leading telecom companies have hiked tariffs by up to 20 per cent in the last one year. Trai has estimated that operators will have to hike tariffs only by 15 paise per minute due to the new reserve price. However, telecom companies say they would have to hike tariffs by at least 30-40 per cent to offset losses due to the high reserve price.

RBI has allowed banks to give loans against mortgage of airwaves by operators. However, banks are hesitant as there is no clarity on their freedom to sell airwaves if companies default. Banks are eagerly awaiting RBI directives on spectrum pricing.

Public sector and private banks have an exposure of about Rs 98,000 crore to the telecom sector. The State Bank of India (SBI) alone has an exposure of about Rs 24,300 crore.

Recently, Fitch Ratings had slashed the outlook of India's telecom sector to negative due to regulatory uncertainties.

(With inputs from Pratiba Raman in Bangalore)

Courtesy: Mail Today