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RBI directs banks to review telecom sector loans

Showing its concern over the tensed financial conditions in the telecom sector, the Reserve Bank of India (RBI) has directed the boards of banks to review the telecom sector loans and consider making provisions for standard assets in this sector at higher rates.

The RBI directive to banks on telecom sector loans has come at a time when the competition has grown faster in the segment and there were reports of stress from the companies. The telecom operators, according to an Assocham-KPMG study, have an accumulated debt of around Rs 3,80,000 crore, reported The Indian Express.

“As the telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one, board of directors of the banks may review the telecom sector latest by June 30, 2017, and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date,” the RBI said.

While the RBI’s deadline on cleaning up the banks’ balance sheets will be over by Q4 of 2016-17, banks are preparing to make further provisions in the Q4 results.

Banks had made additional provisions in the case firms in steel, textiles, chemicals and infrastructure following the RBI directive. The provisions — typically 85 per cent is for non-performing assets — amount to over Rs 117,000 crore in the last three years (2014, 2015 and 2016).

In a similar measure, the RBI has directed banks that they should put in place a board-approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on an evaluation of risk and stress in various sectors.

“The policy shall require a review, at least on a quarterly basis, of the performance of various sectors of the economy to which the bank has an exposure to evaluate the present and emerging risks and stress therein,” the central bank added.

“The review may include quantitative and qualitative aspects like debt-equity ratio, interest coverage ratio, profit margins, ratings upgrade to downgrade ratio, sectoral non-performing assets/stressed assets, industry performance and outlook, legal/ regulatory issues faced by the sector, etc. The reviews may also include sector specific parameters,” the RBI said.

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