There are fears that SC order on AGR liabilities will further impact banks' asset quality and could drive an uptick in credit cost.
State-run banks faced selling pressure on February 17 after the Supreme Court refused relief and asked telecom operators to pay adjusted gross revenue (AGR) dues by March 17.
The Nifty PSU Bank index fell nearly 2 percent amid fears of NPA in the telecom space after the top court on February 14 pulled up operators as well as Department of Telecommunications (DoT) over non- paying of dues by its January 23 deadline.
"We believe that the Supreme Court verdict on AGR liabilities will further impact banks' asset quality and could drive an uptick in credit cost over FY21 as Vodafone Idea faces an imminent risk of shutdown," Motilal Oswal said.
VIL has gross funded exposure of Rs 27,000 crore (Q3FY20), while there is cash & cash equivalent of Rs 12,500 crore.
"Thus, the total net impact on the funded exposure is around Rs 15,000 crore. However, the bigger concern for the lenders will be the large amount of non-fund bank guarantees toward spectrum charges. Total deferred spectrum debt for Vodafone Idea stands at around Rs 90,000 crore. This will have bigger implications on asset quality of banks," the brokerage said.
The exposure of banks (funded/non-funded) to the entire telecom sector ranges between 1-2.5 percent of their total exposure. SBI has exposure at around 1.6 percent, ICICI Bank 1.8 percent, IndusInd Bank around 2.1 percent, Axis Bank at 2.5 percent and HDFC Bank at around 2.3 percent.
The Supreme Court on February 14 came own heavily on the DoT for not recovering AGR liability and asked telecom companies to pay the dues before the next hearing on March 17.
Total AGR liability stands at Rs 1.47 lakh crore, of which Bharti and Vodafone Idea need to pay Rs 34,000 and Rs 44,000 crore, respectively.
Banks like IDFC First Bank have already made 50 percent provisions toward the Vodafone-Idea group, while ICICI Bank and Axis Bank have downgraded this exposure to BB & below pool in the recent quarter.
"In comparison to other peers, SBI has better ability to provide for this stressed telecom company owing to its higher recovery potential from other stressed accounts/divestment in cards business," said Motilal Oswal.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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