The RBI's latest diktat to banks asking them to increase their asset provisioning over the prescribed limit could end up hurting the lenders.

The cancellation of 2G auctions and reallocation of 3G airwaves, all funded through bank loans, and the disruptive entry of Reliance Jio with free services has created major stress on the balance sheets of telecom companies.

The Reserve Bank of India (RBI) is worried that banks may not have fully recognised stressed assets and hence on Tuesday advised banks to consider setting aside higher capital as provision even for good loans in stressed sectors.

However, the central bank has not specified the extent of higher provisioning for good loans given to telecom or other stressed sectors.

Under the current rules, most standard assets attract a provision of 0.4 percent. The few exceptions include credit to commercial real estate, which has a 1 percent provision, and residential real estate (0.75 percent).

Banks have a total loan exposure of Rs 82,200 crore to the telecom sector.

An official with a public sector bank said, "The RBI requirement will definitely add some stress for us but we will have to decide how much to take as the discretion is on us."

Karthik Srinivasan, Senior Vice President at ICRA rating agency, said, "Some concern is there for banks on the telecom front but it remains to be seen what hit banks will be taking on account of provisioning as it is not specified by the RBI. Further, the non-funded, sanctioned and un-drawn exposure could be higher. This will definitely increase credit costs for banks in the next 12 months. However, the extent may be limited because the exposure to the telecom sector is only 1-2 percent of the total credit in the system," he said.

According to ICRA, the debt to EBIDTA ratio (which is the servicing of debt through existing earnings) for the fiscal year 2017 is estimated to be 6 times, which is an alarming level.

The total outstanding debt of listed telecom companies as on September 2016 was said to be Rs 2.14 lakh crore.

An India Ratings and Research report in February had predicted that the industry has lost about 20 percent of its revenue post Reliance Jio's launch of free services. The industry's debt levels have risen sharply from Rs 2.7 lakh crore in 2014 to Rs 4.85 lakh crore at the end of December 31, 2016.

The RBI has asked bank boards to review their exposure by June 30 and consider making provisions at higher rates so that necessary resilience is built into their balance sheets.

According to analysts, banks may see an overall 2.5 percent increase in new additions to slippages (into bad loans) in the next 12 months.

At present, banks are already sitting on a pile of bad loans or non-performing assets (NPAs) worth about Rs 7 lakh crore, 9 percent of total bank credit. – Money Control


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