RBI raises red flag over banks’ loans to telcos

Raising a red flag on the telecom sector, the Reserve Bank of India (RBI), on Tuesday asked banks to review their exposure in next two months.

Published: 19th April 2017 05:37 AM  |   Last Updated: 19th April 2017 05:37 AM   |  A+A-

By Express News Service

MUMBAI: Raising a red flag on the telecom sector, the Reserve Bank of India (RBI), on Tuesday asked banks to review their exposure in next two months. Citing lower interest coverage among telcos, it even asked lenders to make necessary provisioning for standard assets at higher rates than necessary, perhaps indicating likely trouble from operators, which are crumbling under an intense tariff war.

As per estimates, telecos have an accumulated debt of `3.8 lakh crore. It may be noted that the central bank had listed telecom among the three most indebted sectors along with iron and steel and power in its December 2016 Financial Stability Report.

“More immediately, as the telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one, Board of Directors of the banks may review the telecom sector latest by June 30, 2017,” it said in a notification on Tuesday.

Interest coverage ratio is an indicator measuring the debt servicing ability of the borrower. A ratio of less than 1 indicates a company’s inability to honour payments.

Currently, the mandated provisioning against standard assets is between 0.25 and 1 per cent for different sectors.

Meanwhile, in another notification, RBI pushed for greater transparency asking banks to make specific disclosures if their assessment of bad loans and provisions is significantly lower than the regulator’s assessment. Banks will now need to disclose if the additional gross NPAs identified by RBI exceed 15 per cent of the published incremental gross NPAs and if additional provisioning requirements assessed by RBI exceed 15 per cent of published net profit.

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