1. Government set to change rules for telecom sector loans

Government set to change rules for telecom sector loans

In a bid to help ease the stress that has built up in the telecom sector, Government may change rules on restructuring loans to telecom companies.

By: | Updated: April 21, 2017 4:45 PM
The tenures of loans outstanding to the telecom sector may be extended from the current 10 years to 15 or 20 years.

In a bid to help ease the stress that has built up in the telecom sector, Government may change rules on restructuring loans to telecom companies, CNBC-TV18 has reported citing a NewsRise report.

A panel headed by the cabinet secretary may allow the tenures of the loans outstanding to the telecom sector to be extended from the current 10 years to 15 or 20 years, according to the report. The government might also propose to raise the interest rate by 35 basis points in case of such extensions are granted.

Earlier in the week, Reserve Bank of India (RBI) had advised banks to make provisions at a rate higher than the regulatory minimum in order to help them shield their balance sheets from stressed asset shocks. The central bank had emphasised that the provisioning rates prescribed by it are only the regulatory minimum and encouraged the banks to make provisions at higher rates based on an evaluation of risk and stress in various sectors of the economy.

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The banks were asked to make provisions for standard assets in the telecom sector at higher rates as the sector is currently reporting stressed financial conditions with an interest coverage ratio of less than one. This will ensure that banks have adequate provisions for loans and advances at all times as provisioning at higher rates will allow necessary strength to be modelled into the balance sheets of the banks in case the stress reflects on the quality of exposure to the sector at a future date.

RBI also asked the banks to ensure a quarterly review of the sectors to which they have exposure with an objective “to evaluate the present and emerging risks and stress therein.” Banks have been asked to review the telecom sector latest by June 30, 2017.

Earlier last month, Finance Minister Arun Jaitley spoke about taking recursive and prudent financial measures to solve the problem of stressed assets in order to smoothen the credit cycle of all the major state-run banks.

Recently, the talk of creating a ‘bad bank’ has gained momentum to buy bad debts from lenders to restructure them, as it has now become imperative to tackle record stressed loans of $133 billion held by Indian banks by last September, or about 12.34% of their total loans.

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