Will the 2G verdict shake up banks? Unlikely, say experts

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Will the 2G verdict shake up banks? Unlikely, say experts

The Supreme Court verdict on multi-crore 2G scam has raised apprehension on the asset quality of banks, already battling to check the rise of non-performing assets. The apex Court on Thursday cancelled licenses of 122 telecom companies, which were allotted by the former telecom minister A Raja.

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Saikat Das
Moneycontrol.com

The Supreme Court verdict on multi-crore 2G scam has raised apprehension on the asset quality of banks, already battling to check the rise of non-performing assets. The apex Court on Thursday cancelled licenses of 122 telecom companies, which were allotted by the former telecom minister A Raja.

So, does the scenario pose threat to lenders?

"There will be no immediate impact," B K Batra, Executive Director, IDBI Bank told Moneycontrol.com.

"In a sense this verdict has cleared all uncertainty over 2G scam. Going forward, the business environment will turn positive in telecom industry. We have insignificant exposure of around Rs 800 crore to 2G companies out of our total telecom exposure at Rs 12,000 crore. As of now, we do not see any major concern," he said.

IDBI Bank, according to a source, extended credit at around Rs 700 crore to Idea Cellular and Rs 100 crore to S Tel, two telecom companies. Similarly, Corporation Bank has an exposure of around Rs 146 crore to Videocon (the telecom arm of the bigger conglomerate).

"There is no major concern on this issue. However, we are looking into some further details of the court verdict. We will also talk to the company (Videocon) to take stock of the situation. Whatsoever, our exposure is not so big," said Ajai Kumar, CMD, Corporation Bank .

In order to gauge the full impact of 2G license cancellation, banks are seeking some clarification. According to the grapevine, a consortium of bankers would make a presentation to the government of India in this regard. Even banks themselves are examining the probable impact on their asset quality.

Some of the key concerns are as follows:

• The brand of the loan account: If the telecom company belongs to big brand having multiple business verticals, the threat is mitigated.
• What would be the next course of action by the telecom companies? (They cannot challenge the SC verdict but could file a review with the same SC judge seeking some clarity on the judgment.)
• The impact of license cancellation on their (telecom companies) balance sheet/cash flows.
• When and how will the government refund the license fees? There is a growing perception that the government may raise question on the revenue generated by those 2G companies after licenses were granted. The government policy on the refund issue assumes a lot of importance.

"The impact will be very negligible on our asset quality. Our telecom exposure is less than three per cent of our total loan book (Rs 2.61 lakh crore as on Dec 31). We need to take the full details of the issue," said R K Bakshi, Executive Director, Bank of Baroda , which according to market sources, has an exposure of around Rs 250 crore to 2G companies.

Earlier, CNBC TV 18 reported that the State Bank of India had an exposure of around Rs 4500. The second largest PSU bank Punjab National Bank too lent to most of the 2G license holding companies.

The 14-share Bankex however, rose half a percent to close the day at 11480 points on Thursday. Analysts tracking banks are not overly worried on this.

"It will have minimal impact on banks' asset quality," said Nilanjan Karfa, senior analyst, Brics Securities.

"This issue is much less the power sector issue in terms of magnitude. Telecom as a sector roughly holds around 3% of the total industry credit as against 7-8% held by power sector. Within telecom, 2G companies' exposure would be below 40-50% of the total credit (3%)."

saikat.das@network18online.com