DNA Money Edit: Why RBI red-flags banks' telecom exposure?

The Reserve Bank of India (RBI)'s directive to banks to set aside higher provisioning for telecom sector, starting from the current quarter, is hardly surprising. As India continues to be in the midst of a telecom war with incumbent players warming up with mergers and acquisition for survival, the fresh RBI diktat follows its concerns over high leverage in the sector. As of September 2016, the total debt of listed telecom companies was at Rs 2.14 lakh crore, while the total outstanding debt stood at nearly Rs 4 lakh crore, mainly on account of payments for spectrum, spectrum-usage charges, and other levies.

RBI has now advised banks to consider setting aside higher provisions even for good loans in stressed sectors. The central bank seems to be worried that banks have not fully recognised their bad loans even as they are sitting on a huge loan pile of at least Rs 7 lakh crore, or 9% of all bank credit. Regarding their exposure to the telecom industry, 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 in the balance sheets.

After the disruptive entry of Reliance Jio, the telecom sector is on a downward trajectory as far as margins and profitability are concerned. Analysts have estimated the stressed assets in the telecom sector at around Rs 80,000 crore. The ghosts of 2G-spectrum goof-up seem to be haunting the sector while it struggles to stay afloat.