In its recent application submitted to the Supreme Court over adjusted gross revenue (AGR) dues, the Department of Telecommunications (DoT) has cited receiving requests from banks to save Vodafone Idea from bankruptcy.
Such concerns of the banks emanate from their fear of getting a hit on their capital position, should Vodafone Idea go bankrupt.
Letters from the Indian Banks’ Association(IBA) and State Bank of India (SBI) were part of the government’s plea submitted in court.
In its letter to the Department of Financial Services, SBI mentioned that it had an exposure of Rs 176.5 billion to Vodafone Idea. Further, it has also being pointed out that the telco owes additionalRs 69.65 billion to other public sector banks and Rs 217.88 billion to private sector banks.
Meanwhile, the IBA, in its letter, urged the government to take proactive measures to prevent Vodafone Idea from going bankrupt, thereby avoidingany ripple effects that such a development might have on the larger economy, especially on the banking sector. To this end, the IBA proposed several recommendations to enable Vodafone Idea to get back on track.
The IBA has suggested removal, or at least reduction, of the spectrum usage charge as telcos are already buying airwaves through auctions. Further, it has recommended the government to ensure minimum tariffs that are above the cost of the most competitive operator. It also suggested reducing the contribution of telecom companies to the universal services obligation fund, until the current corpus of Rs 500 billion is fully utilised.
Moreover, The IBA has recommended the government to request the Reserve Bank of India (RBI) to treat spectrum as a tangible asset and classify it as a property under the Insolvency and Bankruptcy Code. As per IBA, such a move would provide relief to banks in terms of provisioning and considering the stress on the profitability of banks.