Banks to lose about R10 k on 2G loans: Moodys

Written by fe Bureau | Mumbai | Updated: Feb 28 2012, 09:16am hrs
Global rating agency Moodys Investors Service said Monday that Indian banks will find it tough to recover roughly R10,000 crore lent to mobile telephony companies whose licences were cancelled by the Supreme Court. The apex court on February 2 cancelled 122 second-generation (2G) licences of eight companies after they were issued on a first-come-first-serve scheme in 2008 and asked the government to auction spectrum or airwaves that carry radio signals.

The agency said at least R10,000 crore out of R90,000 crore lent specifically to companies, which won licences in 2008, was risky. We view these loans to be particularly at risk because they were extended mainly to small operators, many of which have no other sources of income than the activities that their licenses allowed them to conduct.

And in most cases, the only collateral backing the loans, were the very licenses that are now no longer valid, the report said.

This is the latest development in a series of events that raised concerns about the asset quality at Indian banks over the last few quarters, most noticeably the financial difficulties of mobile telephony companies, power producers and airlines, to which banks have lent money. The risks are much higher among public sector banks as many private sector banks have stayed away from lending to companies whose licenses were cancelled. These banks will almost certainly suffer losses associated with their loans to affected telecom companies as 75% of loans were given with licences as collaterals. Of the banks that we rate, public statements suggest that the State Bank of India, Canara Bank, IDBI Bank Limited and Punjab National Bank are some of the public sector banks with significant 2008-2G-related loan exposures, it added.

But, banks hope they can recover loans as it expects the government to refund the fees collected from spectrum sale. The deterioration in asset quality associated to the license cancellation is credit negative for Indian public banks, adding further pressure on the sector at a time when they are already facing increasing asset quality challenges in a difficult operating environment, the report said.