Rishi Ranjan Kala
The Reserve Bank of India said that a sectoral analysis of total borrowings by companies at the end of last fiscal revealed that the telecom sector had the “largest debt with negative profitability”. As per the central bank’s sectoral analysis, which reviewed 19 industries, borrowings by the firms in chemical, computer, electrical machinery, hotel, iron & steel, papers, pharmaceuticals, real estate, rubber and transport industries fell during FY17, while those in cement, construction, power, food products and textile industries showed some increase.
Firms in automobile and telecom showed a “substantial increase in borrowings”, the RBI said in its latest Financial Stability Report (FSR), adding “a risk profile of select industries as at end March 2017 showed that the telecommunication industry had the largest debt with negative profitability. The industry also had relatively high leverage”. Telecom industry’s total debt stands at around Rs 4.60 lakh crore. It has bought spectrum since 2010 worth Rs 3.45 lakh crore for which an upfront payment of Rs 1.9 lakh crore has been made with the balance Rs 3.08 lakh crore to be paid by 2028-29.
The FSR said telecom and power sectors “remained areas of concern”. “Significant increase in share of ‘debt at risk’ is seen under a sensitivity test for such companies,” it added. On April 18, the RBI had come out with a circular in which banks were advised to make provisions at higher rates in respect of advances to stressed sectors of the economy, specifically mentioning the telecom sector.
On the rationale behind the move, it said, “The RBI has prescribed various rates of provision for standard advances. However, these rates are minimum and building up of stress in specific sectors of economy may need higher than the minimum provision as a pre-emptive measure to address the potential stressed assets from those sectors. Accordingly, this circular has specifically mentioned the telecom sector which may need higher provision.”
The findings of RBI’s report comes at a time when a government-appointed inter ministerial group is finalising its recommendations to help the industry face financial headwinds, which incumbent operators like Bharti Airtel, Vodafone India and Idea Cellular blame on the six months of free voice and data offers by the new entrant Reliance Jio. The industry, including Jio, have suggested to the IMG for a cut in licence fee and spectrum usage charge, but sources have indicated that the panel is unlikely to recommend any such step as the representatives of the finance ministry on the panel are against it as it would lead to a decline in government’s revenue.