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Vodafone Idea dilemma: With Rs 1.8 lakh crore in debt, here's how banks with exposure may get impacted

According to a Nomura research report, State Bank of India has the highest exposure to the firm, although in terms of materiality, the exposures are quite large for IDFC First Bank and YES Bank.

August 09, 2021 / 09:34 AM IST
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Hammered, battered and bruised, telecom player Vodafone Idea does not see any light as the road for its survival is uncertain. Recently, Aditya Birla Group Chairman Kumar Mangalam offered his stake in VIL to the government or any other entity in a bid to keep the company afloat.

Earlier, Vodafone CEO Nick Read said the telecom major will not be infusing fresh equity into debt-ridden Vodafone Idea (Vi). Read made the comments during a conference call with investors on July 23, Business Standard reported.

Vodafone Idea's gross debt, as of March 31, 2021, is estimated to be at least about Rs 1.8 lakh crore. Eight top banks led by SBI have large exposure to the firm. In terms of percentage to book, IDFC First Bank, YES Bank and IndusInd Bank top the list. SBI has around Rs 11,000 crore exposure to Vodafone Idea which constitutes 0.5 percent of its loan book whereas IDFC First Bank has Rs 3,240 crore exposure which is around 3 percent of the loan book.

Others include Yes Bank (Rs 4,000 crore or 2.4 percent of the book), PNB (Rs 3,000 crore or 0.5 percent of the loan book), Axis Bank (Rs 1,300 crore or 0.2 percent of the loan book), ICICI Bank (Rs 1,700 crore or 0.2 percent) and HDFC Bank (Rs 1,000 crore or 0.1 percent). The numbers are based on a Nomura report.


Larger banks may not have to worry much because as a percentage of the book, exposure is not very high. Also, most banks had started providing for likely losses from Vi. Banks have been preparing for this for a while. But, that may not be the case with smaller lenders. "Most of the larger banks will absorb the hit given their very large balance sheet size. However, smaller mid-sized banks will have some issues," said Jyoti Roy, Analyst at Angel Broking.

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According to a Nomura research report, the State Bank of India has the highest exposure to the firm, although in terms of materiality, the exposures are quite large for IDFC First Bank and YES Bank.

"For IndusInd Bank, the funded exposure is around Rs 1,000 crore and balance is non-funded. Most of these banks are well capitalised. Lastly, the VI risk-exposure has been on investors’ minds for the past two years and is not a new problem. Across banks, the exposure are already reported under ‘below investment grade’," it said.

"As a result, we believe, in case of an eventual default, stocks may not have much material downside," it added.

S S Mallikarjuna Rao, MD and CEO of Punjab National Bank said the developments in the last few days were areas of concern for the banking industry, referring the AGR-related issues for the telecom players. Rao, however, said PNB's exposure is not very high in VIL and it is not going to impact its balance sheet.

"However, we will be definitely discussing with other bankers to see what kind of action we need to take going forward considering the statement of K M Birla only yesterday," Rao said, referring to the billionaire businessman's offer to hand over his stake in VIL to the government or any other entity.

VIL's gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021.

IDFC First Bank has marked the account of VIL as stressed and has made provisions of 15 percent (Rs 487 crore) against the outstanding exposure of Rs 3,244 crore (funded and non-funded).

"This provision translates to 24 per cent of the funded exposure on this account. The said account is current and has no overdues as of June 30, 2021," the lender said in its Q1FY22 investor presentation, referring to the account as "one large telecom account".

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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first published: Aug 9, 2021 09:34 am