Santosh Nayar, Deputy MD Corporate Banking, SBI told CNBC-TV18, RBI's move will aid banks to sell their spectrum in case there is a default. However, spectrum alone will not encourage banks to lend cash flow would also be considered.
The Reserve Bank of India has approved the proposal to allow telecos use spectrum as collateral and garner funds from banks for the upcoming auctions.
Santosh Nayar, Deputy MD Corporate Banking, State Bank of India (SBI) told CNBC-TV18, this move will aid banks to sell their spectrum in case there is a default. However, spectrum alone will not encourage banks to lend cash flow would also be considered.
The country's largest public sector lender doesn't have any non performing asset (NPA) in the telecom sector neither there have been defaults, he informed.
"All the loans which we have given are to large well known corporates against their group guarantees. We have no problem. There is not a single NPA in the telecom sector and in the 2G sector in this bank or for any other banking system," he elaborated.
Meanwhile, CNBC-TV18 also learns that restructuring of state electricity board (SEB) loans are being discussed by the government, where 50% of bank's exposure to SEBs will be assumed by state government and the rest will get converted into bonds.
These steps will contribute to healthier SEBs, but for banks cash flow is all that matters, Nayar said.
"We need to see whether SEBs have sufficient cash flow to meet their normal expenditure, investment upgradation. After all that whether there is enough money left to pay the loan, interest coverage and installments. If that is there then definitely there is no problem looking at the lending," he elaborated.
Below is the edited transcript of Nayar’s interview with CNBC-TV18. Also watch the accompanying videos.
Q: The ability to use spectrum as collateral, how does that change things? Does it make it easier and more willing on the part of banks to lend to telecom companies?
A: It is a positive because we have been discussing this with DoT for quite some time. Earlier there was some regulation which said that we could not get a charge on the spectrum. With the current development it will be possible for the banks to sell their spectrum in case there is a default.
But spectrum alone will not encourage banks to lend, because ultimately it will deepen the cash flows. We will have to see what is the price they pay for the spectrum and what is the revenue model they will have to build up, whether the economy can bear that kind of cost, so ultimately it all depends on that.
Q: Will you able to go back on the loans that you all have given to telecom companies so far? There was a lot of controversy when loans were given with license as collateral. Some questions were raised by the judiciary. Of course we didn’t get to hear any rules. But what about loans already given, especially to parties whose licenses have been cancelled? Are you seeing default over there? Can you renegotiate any of those loans?
A: For all the loans given by the banks, the judiciary has not pointed out any such issues. All of it has been cleared. Banks have lent as per the existing policy. All the loans which we have given are to large well known corporates against their group guarantees. We have no problem. There is not a single NPA in the telecom sector and in the 2G sector in this bank or for any other banking system.
So, these corporates have the ability to raise cash elsewhere and pay. The only thing what happens is since they have invested money in this 2G rollouts they would have taken money from other group businesses and those businesses could come under some sort of strain. From the loans already sanctioned and signed it will be difficult for us to change the terms of sanctions.
Q: If this possibility of mortgaging airwaves does comes through and there is a default situation that emerges, what would be the scenario then? How exactly would it be feasible in terms of the bank to then re-auction the process? We do understand that the excess amount will then have to be given back to the government? Could you take us through the modalities in case there is a default?
A: I wouldn’t be able to comment on that at this stage because we will have to examine what is the legal position when the license itself has to be cancelled, does the company have the right to spectrum. Secondly, when the spectrum was not pledged or mortgaged at that time whether the banks can go back and link the spectrum to the license. All these issues will have to be examined. We won’t be able to comment on this at this stage. But we are not facing any default situations, so we don’t have any worry on that account.
Q: We understand the auction is to be by August 31. When exactly you think you will start actually giving out loans to telecom companies?
A: I wouldn’t be able to comment on that because everybody is working on it to meet the deadline and let us hope it happens fast.
Q: We understand that the proposal which went from the Chaturvedi Committee to the government is that 50% of bank exposure to SEBs will now be assumed by the state governments. The balance 50% is going to get converted into bonds and that opens up exposure limits for banks and they will be now able to lend for working capital requirements. Is this a pleasant state of things for you since at least 50% is going to be paid up hopefully by the state governments? Will that also enable you and will it make you willing to lend to SEBs?
A: It will be definitely pleasant if there is additional support coming from the government. If any form of restructuring has been done definitely it will be much better for lenders. The willingness of the lenders will depend on how the restructuring is carried out. Ultimately, for the lender it is the cash flow which matters.
We need to see whether the electricity boards have the sufficient cash flow to meet their normal expenditure, investment upgradation. After all that whether there is enough money left to pay the loan, interest coverage and installments. If that is there then definitely there is no problem looking at the lending. So, some of the electricity boards which are faster, quicker off the mark will be able to raise money from the banks.
SBI stock price
On August 01, 2014, at 13:23 hrs State Bank of India was quoting at Rs 2463.35, up Rs 23.60, or 0.97 percent. The 52-week high of the share was Rs 2833.85 and the 52-week low was Rs 1452.90.
The company's trailing 12-month (TTM) EPS was at Rs 145.88 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 16.89. The latest book value of the company is Rs 1584.34 per share. At current value, the price-to-book value of the company is 1.55.
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