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Vodafone Idea: How will banks get impacted in the event of a default?

Aug 05, 2021 01:40 PM IST

Larger banks may not have to worry much because as a percentage of their books, the exposure is not very high. Also, most banks had started preparing for the potential default by providing for likely losses from VI.

After Kumar Mangalam Birla’s letter to the central government offering to hand over the stake in Vodafone Idea, there is a rising concern among banks over the potential impact of a payment default by the telecom company.

Banks have offered fund exposure (direct loans) and guarantees to the telecom company. The combined exposure is substantial for the sector. What's going to happen to this exposure?

To be sure, the company is not a non-performing asset (NPA) for banks yet as per the latest available information. But considering the huge payment obligations, the risk of a default looks high. Also, if the company defaults on the spectrum payment obligations to the government against which banks have issued guarantees, banks' exposure to that extent could be deemed bad.

What did Birla say?