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Exposure of Indian banks to telecom sector not large enough to pose systematic threats, says Fitch ratings

June 06, 2017

According to a report by Fitch ratings, the exposure of Indian banks to the troubled telecom sector is not large enough to pose a systemic threat for them.  Further, as per the agency, the credit profiles of Indian telecom operators were under pressure due to the fierce competition resulting from the entry of Reliance Jio Infocomm Limited and the rising capital expenditure required for the roll-out of 4G services. Therefore, the agency has a negative outlook for the telecom sector as some telecom companies could find it difficult to service their debt. However, defaults by these companies could add to the problems of banks with weak balance sheets, the agency said.

Moreover, Fitch observed that the pressure was most severe from Reliance Communications, whose credit rating it downgraded recently to 'CCC' to reflect the real possibility of some kind of default. Further, according to Fitch, debt servicing could also become a problem at Aircel and Tata Telecommunications. The agency also observed that Indian banks already had significant asset quality issues that could be made worse by the financial stress in the telecom sector.

However, as per the agency, not all operators faced financial difficulties. To this end, the agency believes that Bharti Airtel would be able to meet its repayments of over $1 billion comfortably. Further, Vodafone India and Idea Cellular, which are currently in the process of merging their operations, were also unlikely to experience serious problems in servicing their debt, the agency said.




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